The year is 2026. Commuters on the 7:02 high-speed bullet train from Birmingham to London on the newly opened HS2 line may not be fully aware that they are racing across some of the most hotly contested compulsory purchase order battlegrounds of the past two decades.
Roll back 13 years to 2013, and the lines for those battlegrounds are only just being drawn up.
The time is now
Settlement on two major cases, which will set the tone for some 385 commercial buildings earmarked for demolition in phase one, are currently receiving the ministerial nod and are set to be announced in October, believe agents.
The Paving Bill, due its third and final reading after Parliament’s summer recess, will give legal backing to the line and start the CPO in earnest. Then the race is on to tie up major sites ahead of submission of the Hybrid Bill to Parliament in December. The message to landowners is clear: the time is now.
For many, the worry is that the £1.3bn pot of cash earmarked by the government for CPO looks decidedly small. Camden, the most voracious opponent, released a report in August saying that claims in its borough alone would eat up most of the CPO budget. If Camden’s independent assessment is right, covering the three miles between Camden and Euston would cost £1bn in CPO costs alone.
HS2 disputes those numbers. Chief executive Alison Munro says she does not recognise or agree with the figures in the report. For starters, only 213 households in Camden would need to move, less than half the number identified in Camden’s report, she says. The organisation has promised a comprehensive assessment of the effects of HS2 and how it will minimise disruption to both businesses and residents as part of the Hybrid Bill.
Mounting criticism
But the project has clearly rattled some. Hustings haven’t even begun but already the political positioning has started. Labour says it will lop the route. Several high-profile think-tanks are questioning HS2’s value for money for the public purse. In the property world, one agent says occupiers have asked him to steer clear of properties on the HS2 route, worried that disruption while the line is built will affect their businesses. Others are concerned that the current route will cause extensive damage to commercial property and development plans. Few want to air their views openly, worried that regional spats will sour corporate relationships with HS2 and any advisory fees along the way.
At present HS2 says it has no research in hand or planned to show the property benefits as it consults on phase two.
Property agents are working out what it will mean for them. Some 385 commercial buildings will be demolished and more than 200 have been pinpointed in draft environmental assessments.
Of these 200, almost as many properties will go in Birmingham as in London. In the capital, Camden will bear the brunt of the demolition, with more buildings earmarked for demolition than Euston, and two-thirds of all buildings in London put together.
What lies beneath?
This is probably the tip of the iceberg. The figures exclude any commercially owned land-take and, crucially for the property industry, the building counts given in the drafts count both a large distribution unit and a farm outbuilding as one building. The other problem is that the draft assessments are just that, drafts, and are subject to change as plans come into sharper focus. At present, no one seems to have comprehended, never mind calculated, the scale of the property task ahead.
BNP Paribas Real Estate is currently trying to do just that. Having gone through the route with a fine-toothed comb, it says it has identified every large commercial owner affected. It claims to act for the majority of big commercial land owners and is currently representing 21 large claimants, including Unite’s hotly contested Curzon Gateway site in Birmingham, Royal Mail, and Grant Thornton at GT House in Euston, to name but a few.
Those 21 could add up to £300m or 27% of the government’s cash pot for phase one, says Chris Selway, BNP PRE’s director of consulting and lead figure on the HS2 compensation drive.
Selway says any property owners near or just outside the 60-metre safeguarding zone either side of the tracks also need to be on their toes. “The design is still in its preparatory stages and there is still the possibility that further stretches of safeguarding
will be introduced with the Hybrid Bill and Environmental Impact Assessment later this year.”
Pre-CPO conditional deals have already been agreed on two of the most significant claims in Birmingham, says Selway, and an announcement is expected the autumn after the HS2 Paving Bill is enacted.
It is also negotiating pre-conditional deals that look at the blight and uncertainty many will suffer while trying to run their businesses.
Time pressure
Selway warns that time is running out. HS2 will start to access sites as early as 2016. “As the rest of 2013 evaporates, it leaves only two to three years for this process, which can involve winning planning consent, design and fit-out and all the complications of moving staff and equipment,” he says.
He points to Royal Mail and Freightliner, which also need to factor in a logistics network with road and rail-borne traffic, a massive undertaking in itself which needs detailed, advance planning.
Despite all this, some are still hoping the problem will quietly go away. The secretary of state has directed HS2 to make some amendments, such as avoiding Roxhill’s 6m sq ft logistic hub in the East Midlands, and around Sheffield Meadowhall. But Selway warns: “We understand further route realignments will not be easily forthcoming.”
Landowners, you have been warned: the time is now.
Case study: the German HS experience
Here’s the bad news. The link between high-speed rail and racy property prices is hazy at best. At worst, it does not exist.
Hindsight is a wonderful thing and Germany has 10 years’ worth of it. The Cologne-Frankfurt section of its high-speed line opened in 2002 and reduced travelling times by over 50%.
A report by the London School of Economics and Political Science and the University of Hamburg into the line found a 2.7% boost to GDP in local areas connected to it. As one of the report’s authors, Dr Gabriel Ahlfeldt, says, this is “quite a lot”.
That’s the good news. That figure, which is corrected to remove any boost from construction of the line, quickly reached an equilibrium and the areas went back to their original growth path. Smaller towns saw a much bigger benefit because their connectivity improved the most. “The point is,” says Alhfeldt, “Birmingham is not badly connected to London, so the 2.7% rise won’t hold here. The economic impact should be lower in Birmingham.”
And it gets worse. Previous studies had found that increasing accessibility by improving transport significantly helped economic development, but one study found no such impact on commercial and residential property prices.
That is backed up by IPD figures for the Cologne-Frankfurt line, which show almost no correlation between construction, line opening and any gains in the past 10 years.
What is interesting for those trying to make predictions in the UK is that Cologne’s population is almost identical to Birmingham’s. Frankfurt is one of the country’s most significant business markets. Could Germany provide a direct correlation to HS2?
In Germany, land values rose by about 10% (comparing pre-1999 with post-2000). But Alhfeldt points out that this could have happened without high-speed rail.
In Germany, he says, local authorities quickly made land available to new firms and opened up business parks. “So there was no scarcity of land and it had no impact on values.
“I am not so sure about the case in the UK. The planning system is more restrictive, so there is some reason to believe that the land price effect will be higher in the UK, but land supply is far more inelastic,” he says.
FRANKFURT: OFFICES As construction of the high-speed line started, while the rest of Germany’s office values plummeted, Frankfurt held its own, as did total returns. During construction, values outperformed the German average. But after opening, values and returns in the Frankfurt office market fell much more sharply than the German average. As Germany’s financial capital, Frankfurt might have been harder hit than others.
COLOGNE: RESIDENTIAL During construction, house prices went through the roof. Capital values grew by 5.1%, more than three times the German average. But once the line opened, that effect was pretty much reversed, with house prices growth just one-tenth of the German average. In terms of total returns, Cologne resi underperformed the German average both before and after construction.
• See also: Interview with head of land and property at HS2 Ltd Liz Hirst
