Low point With seven towers in the pipeline for Birmingham, commentators are questioning whether the numbers stack up. Nadia Elghamry reports
“You’d have to be barmy to build a tower in Birmingham at the moment,” says one high-profile property professional. With seven, mainly residential-led towers at various stages on the city’s drawing board, his is a sentiment that many commentators would undoubtedly share.
Towers are difficult to build at the best of times. Their construction cannot be phased, they lock up capital for substantial periods of time and they place huge chunks of space on the market in one big hit. When these factors are combined with a souring economy, the prospects for towers seem low.
“It is not so much a tall-building issue, it is about building big buildings, and I don’t think anyone will be looking to push anything through at the moment,” says Martin Field, chairman of the Urban Land Institute in Birmingham. And he believes that this may not be such a bad thing. “It’s good to have a shake-out and for some of the riff-raff to go,” he says. “There have been far too many funders just throwing money at things, and it has stopped now.”
Asking questions
The brakes were applied first tohigh-volume residential schemes. Ian Martin, head of Midlands property finance at Lloyds TSB, says: “You’ve got to be asking what sort of profit level you can expect on such schemes, who are you going to sell to at the end, and is it still viable? There may need to be some cost engineering, or you may need to downsize or even mothball the project.”
David Fenton, head of residential for Knight Frank in the Midlands, agrees. He says: “The high-density model for apartment buildings is broken. The tap got turned off reasonably early in the Midlands, but developers have still had to take the hard decision of writing down stock, and people have been wandering away from their deposits for the past eight months.”
Yet, despite a consensus in the market that the only sensible course of action is to put tall buildings on hold, to date few developers have had the confidence to openly confirm this. Ballymore and Richardson Cordwell are tight-lipped about the progress on their respective towers, at Snow Hill and Broad Street. And British Land sidesteps the issue about its Colmore Row scheme by maintaining that, although it has been given a resolution to grant permission, it still needs to negotiate several milestones, such as section 106 agreements.
It says it is looking at funding options, and “will seek prelets”, but will take a view on the market early next year.
Only Dandara has confirmed that it will “hold off” until next Easter at the earliest on developing its V Building, the centrepiece of Arena Central Development’s 2m sq ft Arena Central scheme.
Another option is to seek a change of use. Mike Taylor, associate director in Jones Lang LaSalle’s planning team in Birmingham, and who previously worked as a city-centre planner for the council, points to Snowhill as an example. “When Ballymore wanted to bring forward alternative uses, such as a hotel, there was some flexibility,” he says. “There was a recognition that the market had changed, and the council needed to reflect that.”
Yet there has so far been no stampede through the council’s door, and phones at the planning office have reportedly been quiet.
Clive Dutton, director of planning and regeneration at Birmingham council, says that standards will not be lowered in terms of design. However, he concedes: “It is a difficult time and, of course, if we need to renegotiate on projects, we’re pragmatic about that.”
Office market
But, even if change of use is possible, the options are limited. Birmingham arguably has enough retail, and the sector would be interested only in the lowest floors of a high-rise building. The leisure market is also fairly bloated. Only offices offer a glimmer of hope, with take-up in the city forecast to hit 1m sq ft this year.
Martin Guest, managing director of CB Richard Ellis in Birmingham, advises caution. “The buoyant office market presents an opportunity for tall buildings,” he says, “but people need to remember that there is other product on the market, and developers have to ask themselves: does this tower really work, do the numbers stack up, is the location right for offices and what is the probability of getting funding?”
In addition, changing and mixing uses creates further challenges. Putting residential and offices together can require the construction of two cores to deliver two sets of lifts and two receptions. As Guest points out, no corporate wants someone from the apartments dragging their shopping bags through its marble reception.
Fenton predicts that it will be 2010 before all the bad news is washed out of the economy, and that residential stock in the city centre will get mopped up once yields start hitting 8-10%.
So, is this just a waiting game for high-rise developers, or is a more fundamental shift under way?
Fenton tips the latter. He says: “The future is more niche products, with a lower number of units, and I’m not focusing on the city centre. I’m looking at motorway and railway hubs.”
2 103 Colmore Row
Who British Land
What 35 storeys, with 285,000 sq ft of offices, plus ground-floor shops
Progress CABE has called for it to be refused planning because of concerns over architectural quality. However, the council is minded to grant consent subject to legal agreements late last month
3 Broad Street
Who Richardson Cordwell
What 40 storeys with 342 flats and a four-star hotel
Progress Was set to open in 2009 after winning consent in October 2006. Market sources believe the scheme is on hold
4 V building, Arena Central
Who Dandara
What 50 storeys, comprising 706 flats, a restaurant and sky lounge
Progress Construction was scheduled to start this year, but a decision on development has been deferred for “at least a year”
1 Snowhill phase three
Who Ballymore
What 332 flats in 44 storeys
Progress Work has begun on the footings of the tall, glazed building. The developer has refused to comment on progress, but phase three’s completion date is believed to be under review
5 VerTiPlex, Eastside
Who Pettifer Estates
What 660ft, with café, hotel, revolving glass Gyro tower and observation lounge
Progress Consultation was launched in September 2007. Further details have been slow to emerge, and the council says it has yet to receive an application
6 No 1 Snow Hill Plaza
Who Kenmore
What 720,000 sq ft scheme with 430,000 sq ft of offices. The tallest tower will be 29 storeys
Progress Consent granted in March 2008. The developer expects to start work early in 2009, with a view to completing in 2011
7 Broad Street (not pictured)
Who Regal Property Group
What Expected to surpass both the 400ft Beetham Tower and the proposed 50-storey V building, with 130 flats and a restaurant
Progress The developer started working up proposals in October 2007, and wants to extend the scheme to include a restaurant, a hotel and conference centre. Then, completion was set for 2010
A banker’s view
Funding high-rise development is not easy in the current environment, says Ian Martin, head of Midlands property finance at Lloyds TSB. He says that the effect of the credit crunch on schemes where construction has not yet started could be profound.
“Lenders must commit the full amount of the loan in their reporting, and therefore must charge something for the whole amount, whether it is drawn or not,” he says. “Towers have longer build times, so undrawn facilities sit there longer, and hence are the most affected.”
As with other types of commercial development, high-rise projects face increased finance rates and fewer credit lines. According to Martin, lenders are generally no longer offering £100m-plus loans, although £25m tranches are easier to find. Even so, he continues, to secure funding for a large project would mean “clubbing together and finding more than one bank that may think the same of a scheme and want to support it. That willbe hard”.
Martin points out that the greater quantity of space created by towers brings its own issues. “It’s not Brain of Britain stuff,” he says. “It means selling more in a market that is buying less, which adds to risk. A longer sale process means mounting interest payments, reducing profit.”
