Liverpool city centre has seen a surge in new residential developments in recent years but one local expert warns the city is facing a ‘development precipice’ that could see construction ‘grind to a halt’. Tony McDonough reports
Now residential development in Liverpool city centre could “grind to a halt” in the next 12 to 18 months, one local expert is warning.
Alan Bevan, managing director of city centre agency City Residential says the city is facing a “development precipice” despite the surge in new residential builds over the past few years.
He also says developers are focusing too much on the investor / landlord market and are ignoring the demand from people keen to become owner-occupiers. And he warns investors may well face a shortfall in expected returns.
“Although the city has seen a decent delivery of residential projects over the last 5/10 years the current decreasing pipelines, lower site starts and challenging economic environment could well lead to a precipice-style fall off in activity,” said Alan in his latest quarterly market update.
He acknowledged there are currently thousands of apartments in the city centre’s development pipeline, adding: “A substantial proportion of the residential supply is being brought forward by Legacie Developments/RW Invest who have a strong record of delivery in the city, including previously stalled sites.
“Practically all of the apartments that are being sold/built in the city are targeted towards investors and landlords looking for either capital growth or strong yields.
“While most developers are focused on selling apartments with a more traditional PRS yield of around 6/7% some are now quoting 12-14% yields based upon short term returns.
“This short term rental investment model is allowing some developers to sell apartments over, what we consider, to be the genuine open market value for those properties and will almost certainly result in disappointing investment returns.”
Alan said there is a “strong and growing interest” from all types of owner- occupiers such as first-time buyers, retirees, downsizers etc but nothing new is being built for them.
“While we can totally understand that the fractional investment sales model is the logical, if not only, choice for a developer to make when contemplating a new-build sales scheme we need to build for owner occupiers,” he explained.
“This may only be feasible on land owned by Liverpool City Council or with the involvement of registered social landlords or Homes England but it is something that the market desperately needs.”
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He identifies viability as the main challenges to new development. Rises in the cost of development have outstripped the rise in values, claimed Alan. He added: “We are also seeing the challenges facing developers with regard to the Building Safety Regulator and the Gateway processes.
“While not just a Liverpool issue, the delays facing developers in progressing schemes through the gateway process has no doubt delayed potential developments even if they meet the viability hurdle.”