Recalibrate or Retreat: What’s next for London’s residential market?

Written by Jorge Aguinaga

At a time when global capital still views London as a desirable long-term investment, the city’s residential market finds itself at a crossroads. 

In the midst of this moment of recalibration, developers, lenders, investors, and local authorities came together at the GRI Club London Residential Meeting to address a complex scenario including shifting demographics, stringent ESG imperatives, and the evolving role of public-private collaboration. 

Appetite remains, but caution prevails

Discussions began with the enduring appeal of residential property in the UK’s capital city, but the prevailing sentiment among the leaders in the room was that institutional appetite has become markedly more selective. 

As participants outlined, Build-to-Rent (BTR) projects remain attractive in principle, yet funding is now contingent on proven demand fundamentals, planning certainty, and a carefully managed delivery risk profile.

The overall consensus was that investors must now weigh up a far more complex equation than they previously faced, with higher borrowing costs, the risk of regulatory interference, and shifting population needs all playing a significant role. 

Matching product to people

The focus next turned to geography, where it was observed that the classic binary divide between Central and Greater London is breaking down, not necessarily in terms of pricing, but particularly with regards to product-market fit.

While the city centre remains high-value, attendees agreed that changing demographics and hybrid work patterns are shifting demand outward. Yet infrastructure, planning delays, and inconsistent borough-level policy create persistent friction.

The prevailing sentiment is that while homes in Central London continue to command a premium, boroughs beyond Zone 2 are fast emerging as viable contenders, particularly for BTR models, where scale and affordability are vital. 

Who takes the risk?

The key question therefore comes down to the matter of who ends up shouldering the development risk in an environment of cautious lending and subdued exit liquidity.

As conversations at the gathering confirmed, lenders are pulling back unless deals come heavily de-risked from the outset, particularly on large-scale BTR and Build-to-Sell (BTS) developments without robust forward funding.

Some participants described a trend toward alternative finance models and fractional investment platforms designed to fill the funding gap left by traditional debt.

In many cases, co-investment structures are gaining traction, although they too require a firm handle on build costs and delivery timelines to ensure success.

It was also noted that institutional involvement now often begins much earlier, with capital providers seeking a say in design, ESG delivery, and tenant targeting, highlighting the importance of early alignment between developer and investor priorities.

Brownfield vs Greenfield

The next issue brought to the table during the meeting was the debate between brownfield and greenfield development, with consensus positing that while greenfield sites offer fewer construction headaches, brownfield land - often located in better connected urban areas - offers resilience against future policy swings and demographic shifts.

Paradoxically, this has made some inner London boroughs less attractive than emerging suburban hubs, where pro-development councils and simpler land conditions create a more compelling risk-adjusted return.

That said, ESG considerations are becoming increasingly operationalised. As conversations highlighted, sustainability is both a market differentiator and a non-negotiable. But the path to net zero still demands clarity from regulators and flexibility from investors.

The public sector's role

Discussions also highlighted the critical role of the public sector, particularly the Greater London Authority (GLA), in facilitating housing development in London through public-private partnerships (PPPs). 

The GLA’s support, including funding and navigating regulatory hurdles, is essential for ensuring the viability of affordable housing projects amidst high construction costs and economic uncertainty. 

While private developers, particularly mid-sized ones, are key to delivering housing, they face challenges such as financing difficulties and regulatory complexity, making public-private collaborations, such as the City Hall Developer initiative, key to unlocking smaller, underutilised sites.

The continued uncertainty posed by rent controls and policy interventions was also covered, as despite not currently being widespread, concerns around their implementation are creating friction in investment committees and underwriting processes.

Participants underscored that, from a policy perspective, clarity and consistency are now as valuable to investors as land availability or cost savings, while the role of the public sector is not just as a regulator, but as a co-investor and co-creator of viable projects.

Opportunity amid uncertainty

Looking ahead, the prevailing sentiment for London’s residential is one of recalibration, not retreat. The city remains a global magnet for capital, talent, and innovation. Yet the path to new development is increasingly constrained, not by demand, but by execution.

With such structural complexity, the goal is to deliver schemes that not only work financially, but also resonate socially and politically. As conversations at the gathering confirmed, investment is not the issue - confidence is.

To resolve this matter, it was deemed to be essential for the sector to build stronger bridges between public authorities and private capital, because with such a complex ecosystem, no single player can act in isolation.