The delivery of apartments in Liverpool city centre is slowing, according to the estate agent, which said that build-to-rent and social housing providers could be the main beneficiaries of the fractional sales market’s decline.
With a number of stalled schemes in the city, managing director Alan Bevan said that City Residential has revisited the existing pipeline to analyse how many approved and proposed schemes have a realistic chance of ever breaking ground.
Bevan noted that market conditions are “now less favourable than they have been in the past”, adding that “the fractional sales model that dominates the current market has definitely slowed”.
This model, where development is funded by off-plan sales of apartments to investors, often overseas, has been used on various projects in the city – some successfully, others less so, including those at projects connected to North Point Global and Pinnacle. Bevan however said that the decline in this market is not solely to blame.
He said: “While the issues over ‘stalled’ schemes have obviously had an effect on the market there are also concerns over Brexit, cautiousness over future price growth and worries around rental supply and demand.
“While this quarter has been busy we can’t help but feel that there may be a small storm brewing on the horizon. The continued uncertainty over Brexit, a slowing pipeline for development and questions of continued demand for fractional sale developments present a potentially challenging environment for the development community.”
Bevan said that although the volume of live development typically falls in the third quarter of the year as student accommodation schemes reach completion, the slack is usually taken up right away, but that the volume of planning applications has slowed.
Explaining further the drop-off in development, he said: “Many of the proposed developments with planning were also bought by developers using land options. With the expiry of these options coinciding at a time where the market is more challenging it is of little surprise to see some fall-off in anticipated developments.
“The recent announcement that the city has set up a councillor-led scrutiny panel to look into the wider issue of “fractional schemes” can only further highlight some of the market concerns that are prevalent.”
The other key factor in slowing development is the availability of prime land, Bevan said. He said: “While there is still a large amount of land in secondary areas to the north and south of the city there are very few prime sites in the city core left to develop. After a huge amount of permitted development office-to-resi conversions there is also a much reduced supply of further office buildings to convert.”
The troubles of developers working in the fractional sales market could spell opportunity for the private rented sector and registered providers, or housing associations, operators in each sector having been outbid on sites in recent years. Bevan said that that this is more likely to be visible on the secondary, peripheral sites where “values had risen too far too fast”.
The PRS market in particular is a positive for Liverpool, with The Keel being bought by Barings, strong interest in Cargo reported and Brickland bringing a project forward backed by Heitman.
The full quarterly report from City Residential is available online.