At the construction site next to Billingsgate fish market you’ll see a group of workers bringing to life a 40-year vision for Europe’s largest construction project. They are not alone, as there are currently over 10,000 people working across 40 construction sites, who have completed a total of 44 million working hours on the Crossrail project so far. A large chunk of central London is being excavated just 30m underfoot, while stations like Canary Wharf have already started fitting platforms and escalators.

It took years of parliamentary activity and eight 7.1m diameter “tunnel-boring machines” for work to start on the Crossrail in 2009. The new trains will be over 200m long with spacious interior layouts and to the joy of grumpy Londoners – air conditioning. Unfortunately, there will still be summers to bear in the underground heat, as under the current plans the services will be introduced as follows:

• Liverpool Street to Shenfield – May 2017
• Heathrow to Paddington (mainline platforms) – May 2018 (when the Crossrail concession takes over the Heathrow Connect service)
• Paddington (Crossrail platforms) to Abbey Wood – December 2018
• Paddington (Crossrail platforms) to Shenfield – May 2019
• Full through service (including services to Maidenhead) – December 2019

You can see a great overview of the route in this video:

It’s not surprising that most commentators and property professionals believe that Crossrail will have a significant impact on the property market, placing upwards pressure on capital values and rent.

It will bring an extra 1.5 million people within 45 minutes of central London, and dramatically reduce commuting times of certain London destinations to key areas such as Canary Wharf and Liverpool Street. Importantly, some of the Crossrail locations are also undergoing substantial regeneration projects.

Property consultants GVA were commissioned to examine the impact on property prices (link to full report below), and identified the following areas as ones to watch in particular:

Of course all of this information is in the public domain, so hasn’t this been priced into property prices already? We’ve spent a lot of time thinking about this and discussing it within the industry – yes and no is the answer.

Yes, these areas have already seen growth and some of this will be driven by the announcement of the infrastructure and regeneration projects. But Crossrail locations are still forecast by most commentators to outperform non-Crossrail locations over the coming four to five years.

This is because Crossrail is several years from completion, as are many of the associated regeneration projects. As such these locations appeal to fewer owner-occupiers and tenants today than they will in the future. As the projects complete and the appeal of these locations widens, it is expected that prices will be driven further upwards.

A good example is Ealing Broadway. It’s already a nice area to live, but right now it takes 35 minutes to travel to Liverpool Street station, i.e. London’s “Square Mile”. That time will almost be halved with the arrival of Crossrail, down to 18 minutes. There will also be more frequent services and improvements to the train station and surrounding areas as part of the council’s plans to improve the look and feel of the town centre. As such it is expected to see an influx of City workers who may usually purchase in areas such as Chiswick. It is expected that Ealing Broadway will therefore outperform areas that aren’t undergoing such improvements.

The Woolwich and Abbey Wood areas are also interesting case studies. The huge scale of their regeneration projects, combined with slashing of travel times to Canary Wharf (8 minutes from Woolwich), means that real change is likely to take place over the next five years.

It should also be noted that local GDP is often a driver of house prices. With Crossrail bringing regions within a shorter commute of central London, this reduces their dependence on local GDP and allows them to benefit from London’s GDP. In short, a rise in London’s employment and wages is more likely to underpin property returns (capital and rental) within a reasonable commute of those jobs.

Whilst we’re looking four or five years into the future here, and the property may be set for strong capital growth, it’s unlikely to be a good investment if it doesn’t appeal to tenants right away, attract an acceptable yield, and suffer minimal voids. This requires us to buy mindful of today’s tenant market, not just a vision of what it may be in the future.

For this reason one should be cautious of new build stock in regeneration areas. These properties will typically offer a much lower yield as the current tenant market may be inadequate to cover rents proportional to the cost of the property.

Furthermore, new builds constructed by the larger developers are often priced greatly in excess of local comparable properties, effectively “pricing in” the regeneration story of that area. Large developers achieve this through the use of sophisticated marketing channels, sometimes including overseas sales suites. This can result in a lot of the future market growth effectively going to the developer rather than the investor. One should also be mindful that property prices can go down, and losses on a new build are likely to be disproportionately higher in such conditions.

In conclusion, we believe that Crossrail and the associated regeneration will provide a major boost to certain areas, and see them outperform other locations in terms of capital and rental growth. In turn this represents a significant opportunity for our investors who will be able to access properties in and around these locations on the Property Partner platform.

You can find all of our investment properties along the Crossrail route here.

Sources:

1) GVA Report: www.gva.co.uk/regeneration/crossrail-property-impact-study

Important Note
Property Partner does not provide advice and nothing in this article should be construed as investment or tax advice. The information which appears in this article is for general information purposes only and does not constitute specific advice. Neither does it constitute a solicitation, offer or recommendation to invest in, or dispose of, any investment that is mentioned in this article. If you are in any doubt as to the suitability of an investment, you should seek independent financial advice. The value of investments can go down as well as up. Past performance is not necessarily a guide to future performance. There are risks associated with an investment in any of the products featured on our website.