SME Developers: How to Secure New Development Sites in a Competitive Land Market.
It is a question many developers ask but one that unfortunately does not have a straightforward answer, particularly when considered against the backdrop of rising interest rates, high levels of inflation and an uncertain housing market which, as yet, has not had a significant impact on the market for land.
How the land market has evolved over the last 5 – 10 years provides some useful context but can largely be attributed to the basic principles of supply and demand. Whilst local authorities lack the resources necessary to deliver the number of housing sites required to meet the demands of developers through plan making and the processing of applications, the average price of development land has continued to increase in what is becoming a vicious circle.
As a result, developers are now operating in a market where even an average development site will typically obtain as many as 10 – 20 bids from large scale regional and national developers. These bidders will typically have the resources to not only meet the value expectations of landowners but also offer unconditional deals with full payment up-front.
Whilst this makes it difficult for SME developers to scale and compete for the larger sites on the market, a significant side effect is that the large developers are also now considering much smaller sites as a result of their own inability to compete. Whilst they are unable to secure a sustainable land pipeline of large scale sites in the current market, they are increasingly looking to smaller sites to fill gaps in their budgeted numbers and making it increasingly difficult for SME developers to corner a section of the market.
So with all the above in mind, how can SME developers secure new development sites in such a challenging market. We have provided a number of key points to consider the next time you are preparing to bid for a site:
Key Points to Consider
1. Understand what the landowner wants It would be naïve to suggest that achieving the highest price in the quickest possible timeframe are not the two key factors a landowner will consider when selling a site. However, there is often a trade-off between these points with the highest land value not necessarily offering the quickest return and vice versa. It is important to understand the specific requirements of the landowner you are dealing with and to tailor your offer to their expectations. Whilst large developers may have the financial resources to offer higher land values, they also often have in place onerous board approval processes and therefore struggle to acquire and pay for land quickly, which is where SME developers may be able to offer an advantage.
2. Consider Non-Price Factors Whilst slightly contradictory to the above point and it would be naïve to suggest that price is not the main criteria for most landowners, there are several non-price factors that will influence a landowner's decision over which developer they want to work with. Again in this regard it is important to understand a landowner's aspirations for the site – local authorities and long term landowners who have a vested interest in the future desirability of a neighbourhood may place great emphasis on the quality of design and development being offered. How your offer is presented, and the professionalism this shows, as well as your personality when engaging with landowners can also be important factors to ensure your offer is memorable and the landowner is keen to work with you, all of which leads into the third point which is to do whatever you can to get a foot in the door.
3. Get a Foot in the Door This will be increasingly important given the current uncertainty in the market which may lead to some deals failing to complete. With the caveat being point 4 below, it is always worth submitting an offer as even if you do not win a site at the first round of bids, getting your name in front of landowners and agents will help raise the profile of your business. Furthermore, if you ensure that you emphasise the non-price factors you can offer, with an increasing number of deals failing to complete given the current market uncertainty, there is always the possibility that the site will be brought back to market and you want to make sure that you are the first name on the list to talk to if this does happen.
4. Understand the Market and Know When Not to Bid Without diminishing the validity of the above points, it is also important to have an understanding of the land market and consider that, whilst your own development appraisal might value a site at a certain level, what the market is willing to pay could be considerably higher. There are therefore circumstances where submitting a bid can be damaging to your credibility and impact relationships which you may need to rely upon to secure future opportunities. It is key to understand the market and ensure you have consideration for this when preparing a bid.
Our focus in delivering market research is helping our clients to make more informed decisions. It is important to note that it is not an exact science but by carrying out such extensive research, our clients are able to appraise schemes with increased confidence, maximise the value of the site and be more competitive in securing land opportunities.
Underpinning all of the above is the need to have a detailed understanding of your own unique selling points and establishing a land strategy that takes full advantage of that. This should influence the brief you set when carrying out detailed land searches, allowing you to identify sites where you have better prospects of securing a deal.
This is something Unearthed can help you with as we carry out bespoke site search services on behalf of developers, starting with an initial consultation where we work with you to establish a focussed brief. We identify all potential development meeting the agreed brief, following which a shortlist is agreed and contact made with landowners with a view to agreeing acquisition terms. We aim to deliver a personal, bespoke service and provide a resource that you can draw upon any time you are looking to secure development sites without going to the open market.
To discuss your requirements in more detail through an initial no-obligation consultation, please get in touch to find out how we can help you: jordan@unearthed.land
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