As the race for space continues in London, developers and freeholders are now looking to sell the air space in their properties to maximise their investments in what has been described as a multi-billion pound market.
DMZ looks at the emergence of air rights in London, and how we are light years behind New York developers.
Air space is rapidly becoming a tradeable commodity in the London market, with a number of companies moving to capitalise on what could be an extremely lucrative market. Haroon Bhatti, investment director of development firm Apex AirSpace, claims that “there’s an estimated £54 billion worth of roof space in London…we see this as a whole new market for residential property”.
Apex build on homes unused air space above residential and commercial building rooftops, developing properties in both the private and public sector they count Brent, Barnet, Camden, Royal Borough of Kensington and Chelsea, Haringey, and Tower Hamlets as clients.
There’s also an argument that air space development could ease the Capital’s housing shortage. A report by urban planning firm HTA Design calculated that rooftops could provide the space for 180,000 extra homes across London, and last year Interior Design firm GrayshottCass called for a government funded ‘Loft Loan’, where loft developments would be funded by a government backed interest free loan and repaid in an AirBnB style room occupancy
Food giant Tesco have already latched on to the potential of their own air rights. Three months ago the firms Finance Director Alan Stewart identified 15 large sites in and around London as suitable for redevelopment, projecting the release of £450m of value from their property portfolio.
The company have already dipped their toe into the water, completing a huge 250 apartment development on top of their Streatham Common store in south London. Two bedroom flats in the complex now trade for around £500,000 (£600 per sqr ft) on the secondary market.
At present air space projects appear to be concentrated in high end, high density areas such as Knightsbridge, Chelsea and St. Johns Wood. Partick Brightman, Managing Director of First Penthouse, has been a part of these developments and is realistic about their value, “building into air space is more expensive than building at ground level, so the costs can escalate”.
Other developers are more bullish. Investment Director at Noel & Partners, Fyodor Blumin, recently completed two luxury penthouses above an eight-floor building with a roof space of 3,500 sq ft in Victoria – one has already sold and the remaining is listed for a whopping £3.95million. See the listing here.
“Not as many building owners are exploring the opportunity as they could be, but I believe it has the potential to contribute to solving London’s housing issue” said Blumin.
New York has been trading and transferring air rights since the 1960’s, with shorter buildings of historic interest able to sell the air space above them to neighbouring skyscrapers to maximise a developer’s investment.
In prime areas, air rights are big business – last year Manhattan developers Extell bought 16,000 sqr ft of transferable development air rights for $1,258 per square foot, a princely sum for an area of sky. But if the area is right and the planning is squared, there’s still a juicy margin on offer for developers.
To combat over-development in historic areas of interest, the Big Apple’s Department of City Planning is now considering proposing a new tax on all air rights deals that take place in certain districts, including the famous theatre district.
DMZ predicts big things from the London air space market.
The regulation on skyscraper size and protected views in the UK (e.g St Paul’s Cathedral) is of course more stringent than in the US. There is also more historic, older buildings in London than any city in the US, with the oldest house in the Capital dating back to 1537.
However, there is a huge amount of development potential in the air spaces above a number of commercial projects and offices created from the 1950’s onwards, as well as the lucrative residential market to tap into.
In addition to more obvious large scale projects, we predict smaller developers will move into joint venture loft space purchases, splitting profits between freeholders and leaseholders. At the moment buying air space is largely conducted in off-market deals, but we’re sure it won’t be long until these offerings become regular features on Zoopla and Rightmove.