High rise developments in London will continue to be money makers. According to Mat Oakley, commercial research director for Savills, people are "prepared to pay" to own a piece of one of London's towers and the recent completion of The Shard has whet the appetite of investors for building upwards.
The Heron, a 36-storey residential tower, is also near completion and The Tower at St George Wharf is creating a lot of buzz as one of Europe's highest residential buildings. Demand is only set to soar as the city struggles with a lack of residential stock and high development land prices. London's continued popularity is also helping to ensure prices are competitive, attracting property investment interest from an international market. "London has consistently been the most popular destination for cross-border investment in pretty much every one of the last seven years and that is because it is seen as a very safe haven," Mr Oakley explained.
A recent report by Knight Frank, EC Harris and Barton Willmore, entitled 'Tall Towers 2012: London's high-rise residential developments', revealed that a typical uplift in price per square foot in residential towers stands at around 1.5 per cent per floor, excluding penthouse apartments. When penthouses are included, the average increases to 2.2 per cent. Stephan Miles-Brown, head of Knight Frank Residential Development, stated: "This is London's decade of towers: with residential land values up 20.3 per cent in the last 12 months and a population boom, a need for the most effective use of space is evident."
There are currently 25 schemes under construction in London, which include one or more residential or mixed-use towers. A further 78 projects also have planning permission, with investors eager to capture demand for high rises. Towers look set to hold onto their commercial clout, with value premiums considerable for those built to the right specifications. Knight Frank claims that the higher the unit, the greater the price premium and high rises are cementing their position as the ultimate in exclusive city living.
With increased zeal for towers prevalent in London's property market, developers are also becoming more experimental with their layouts. In some cases, floor plates and designs are being changed to create apartments across a whole floor. Duplexes and triplexes are also becoming more common, helping to underpin the price premium.
However, as high rises become more adventurous, consumers are asking for more, including higher specifications and ease of access, such as private, super fast lifts. This means that investors looking to capture high end markets must seek out the highest towers and the bravest designs.
With all this money in the sector, it feels as though favour has definitely fallen on London's towers, but there is a chance the bubble could burst in the future. While property price premiums and rents look set to remain strong, it seems the London skyline could become somewhat stagnant over the coming years.
City planning officer Peter Rees has stated that it is unlikely that there will be more tall towers in the city itself after current projects are completed. This is a combination of a lack of available land and a difficulty in gaining planning permission. City planners are also becoming concerned that the historic integrity of London could be damaged if more high rises are built in the capital. Knight Frank predicts that towers that will leave a limited footprint on the design of the capital will be approved, as well as those that form part of a cluster of high rises.
However, high rises aren't out for the count in the capital just yet. "Tall towers work," Knight Frank wrote in its report. "They allow many thousands more people to live and work in the central zones near major transport hubs and have tremendous power to regenerate the area around them. Planners recognise the benefits of tall buildings too. The economic, aesthetic and sustainable planning advantages are well known."
For investors, this is good news, but in what is now one of the most competitive property sectors, it is advisable to act now to obtain a stake in a high rise, before prices become astronomical. Whether more towers are built or not, demand is sustainable and it appears as though these buildings will continue to make their presence felt on both the skyline and in the bank.