BUILD IT AND THEY WILL COME article in the Estates Gazette, 18.06.16
Local authorities will need to be bold if they want to bring in the companies that will regenerate their areas. By Mark Smulian
If development projects stacked up financially in most of the North of England, there would be no need for a Northern Powerhouse.
The government’s initiative is there because of a chicken and egg situation – the scheme needs to accommodate the businesses that could regenerate localities are often not commercially viable, but without them, it will be hard to improve economies.
Future development in the Northern Powerhouse is more likely where local authorities are boldest about using their powers creatively to make projects happen. Local authorities must act with financial responsibility but, unlike the private sector, they need not make a profit and can judge a project on its long-term contribution to the local economy.
After gaining a clutch of powers from central government making prudential borrowing easier, local authorities’ room for financial manoeuvre is now quite substantial. This could help the market by creating a climate in which developers have more confidence to build, meaning more schemes get off the ground.
Ken Bishop, Manchester development and agency consultant at JLL, says councils have already stepped forward to get northern developments started. “The biggest challenge currently facing the office market is the difficulty in obtaining finance for speculative development and this is seriously restricting the amount of new schemes being brought forward,” he says.
“The lack of development negatively affects the local authority’s regeneration aspirations and the ability to attract new occupiers.”
Options deployed by councils have included annuity leases, guarantees to purchase a building, and development loans.
“While these can transfer some development risk to the local authority, the benefits of increased employment and rates income make a measured risk worth taking,” says Ken Bishop.
He adds that restrictions on bank lending and investors’ general reluctance to forward fund speculative development mean it is likely that local authority support will be required for some time.
Councils are not there to bail out developers – their priority is their locality’s prosperity. Sometimes though, their objectives will coincide and development supported by the public sector will create an environment where the private sector will become ready to invest.
Burnley takes the initiative
Burnley Borough Council will develop and manage small business spaces, having been unable to attract private finance for projects it considers to be economically vital.
Kate Ingram, Head of Regeneration and Planning at the Council, says: “We are supplying space that the development industry will not fund.”
Kate Ingram says there is a market for spaces of 5,000 sq ft or less in advanced manufacturing, engineering and digital. She says: “We want to attract these firms to improve our economy, and they need space they can easily move in and out of. Normal financiers will not touch these units, as they like to have an end user signed up.”
Under this model, the Council takes the financial risk and owns the buildings. It will manage long-term lettings, with no agent involved; Kate Ingram is confident the Council has the expertise.
These small business spaces are part of Vision Park, a Trebor Developments project on a 5.5 acre town centre site. Trebor’s masterplan was for industrial and office facilities, but the Council wanted the additional smaller units.
“There is no availability of such units in the area and no similar products have been developed for at least the last 10 years,” says Managing Partner Bob Tattrie. “Institutional investors do not wish to invest in smaller schemes and also, given that there are a range of starter units, the covenant strength of the companies taking those units tends to be relatively weak and therefore does not represent institutional, long-term investment stability.”