First City reports that there is currently a two-tier residential development land market with larger sites in better quality locations attracting a disproportionate amount of interest compared to small sites in poor locations. Before the recession, it was accurate to say that almost every site was saleable, generally at a level in excess of alternative use value. This phenomenon “oiled the wheels” of the development land market and ensured developer activity in almost every area.
At that time, there were a host of small developers who typically operated “under the radar” of the large house builders, buying small sites of under one acre and a Gross Development Value of up to about £2m. However, with bank finance for speculative development being relatively scarce, many small developers have been driven out of the market. Inevitably, those small developers that remain active are being very selective and are particularly keen on good locations where new homes sales are stronger.
However there is light at the end of the tunnel. Whereas some sites were almost un-saleable during the last two years, appetite has improved and all sites, large or small, will attract interest provided that landowners understand values are not what they were in 2007. First City recently marketed a village development site which attracted 10 offers of up to £1.25m per acre, proving that in the best locations “small is (still) beautiful”.