Much has been made of the legacy that the 2012 Olympics will leave for East London in general and Stratford in particular, but with the Games just a matter of months away there has been surprisingly little impact on house prices across the area. Indeed an analysis of the relative performance of London’s housing markets shows that the area around the Olympic site has under-performed despite high expectations and new investment. But it is early days for East London. Over the next 10-20 years a whole new residential quarter is set to emerge around the Olympic site and greater Stratford (E15) areas and with this, a new benchmark for house prices.
This paper reports on the current trends in pricing in Stratford relative to London and provides a range of pricing benchmarks for the potential uplift in values as new supply is delivered.
The analysis uses £psf data to enable a like-for-like comparison as average price data can be distorted by a change in the mix of transactions and in some cases large new developments
The average £ per square foot (£psf) of the current housing stock in E15 is £265 which equates to an average price of £243,000. Pricing at the top 10% of the E15 market – the typical starting point for new build pricing – is £345psf. The trends in £psf values over time in E15 are shown in figure 1.
Benchmarking average £psf values in E15 against Greater London over the last decade shows that over the last four years residential prices have under-performed against the wider London market.
Back in 2001, £psf values in Stratford, (or E15), traded at a 30-35% discount to Greater London. In 2006, the year London’s successful bid to host the Olympics was announced – this discount had narrowed to between10-20%. But over the last four years the discount has widened back towards 35% across all price bands – see figure 2. Improvements in transport and services have, so far, failed to offset weaker domestic demand for the existing housing stock.
The Olympics however, will bring a whole new level of housing supply to East London. The housing stock in SE15 is set to grow considerably over the coming years. Up to 11,000 new homes have been planned for the Olympic Park and Village sites alone. A further 2,500 homes are planned on land around the Olympic Village. In total, this new supply will increase E15’s housing stock by 80%. As the area benefits from regeneration, so developers and land owners will be expecting new pricing benchmarks to emerge on the back of new, high quality supply.
The question to be asked however is how attractive a proposition will E15 prove to be to homeowners and investors compared to other emerging and regeneration areas across London?
Looking at pricing today, figure 3 plots capital values around the Olympic site using data based on individual properties expressed on a £psf basis. The map shows Islington and the City to the west and Stratford and West Ham to the east. The Lower Lea Valley (the unpopulated area between the two) runs north to south and contains little or no housing. In the centre lies Stratford and the Olympic Park. The analysis shows a clear pricing divide either side of the Lea Valley with the western areas registering average £psf prices in excess of £600+psf while to the east, values are at £250-£350psf. Around central Stratford values are up to £350-£400psf.
As for potential pricing benchmarks for new supply around the Olympic site only time will tell as the market evolves over the next 10-20 years. The new build market in London has seen particularly strong demand over the last 18 months on the back of a weak pound and strong overseas demand. How long this can be sustained remains to be seen but long-term the E15 housing market will need to find its place within the pricing spectrum of the wider London housing market.
Figure 4 shows £psf pricing levels at the top 10% of the residential market across a range of established and ‘emerging’ central London locations.
This does not reflect current new build pricing levels but does provide an indication of the relative potential uplift from current pricing through the creation of high quality new supply as part of a major regeneration scheme around the Olympics.
Shepherds Bush – with its newly built Westfield Shopping Centre – lies at the opposite end of the Central Line to Stratford. Here house prices are trading at a 73% premium to E15, while the Isle of Dogs and Greenwich are trading at premiums of 46% and 60% respectively. Developers and landowners will be looking at these and other comparable locations and developments to benchmark pricing in Stratford. With so much potential supply the reality is that, as with other large-scale regeneration areas such as Canary Wharf, it will take many years for the market to find a critical mass with a new and established level of pricing.
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