From Regent Street to Scottish fish farms – Alex Catalano casts an eye over the Crown Estate.
The Crown Estate is one of those peculiarly British institutions that defies classification. It is not government property, but all its profits go to the Treasury. It is not the private property of the Queen, but it is part of the hereditary possessions of the sovereign. In other words, this landed estate – £1.6bn of commercial and residential property, 300,000 acres (12,141ha) of agricultural land, all the seabed, Windsor Great Park and Ascot Racecourse – comes with the royal job.
The Estate is run by eight Commissioners, appointed by the sovereign. Seven are part-time, except for the Second Commissioner who is a permanent official and chief executive. Their duty is to maintain and enhance the estate’s value and the return from it – but “with due regard to the requirements of good management”.
The origins of the estate go back to the Edward The Confessor. But, since 1760, sovereigns have surrendered the surplus income to Parliament, receiving in return an annual sum to run the Royal Household: the Civil List. Thus the Crown Estate’s surplus revenue – rents and profits after deducting management expenses – are annually paid over to the Treasury and disappear into the Consolidated Fund used for general purposes. Crown Estate folk are fond of pointing out that, since all profit goes to the government, it is effectively paying 100% tax.
This year the surplus was £84.8m. The bulk of the Crown Estate’s income – £90.1m gross – comes from its urban property. This estate, 15.1m sq ft (1.4m2) of commercial buildings and 1,100 residential leases, is its most valuable holding: £1.53bn. The heartland is in central London, including Regent Street, but there is £327m worth of provincial holdings. There is also a 1,700-strong portfolio of rented homes, dotted about four locations in London. Most are let on fair rents or assured tenancies.
As so much of its value is concentrated in the capital, a good deal of the Crown Estate’s effort and resources goes into working this gold mine. Regent Street – which accounts for more than 12% of net revenues – is now being very actively managed. It has also embarked on a masterplanning exercise for a 2.8 acre (1.13ha) block near Piccadilly Circus, to start building in a decade.
The current urban strategy is to diversify outside the South East. Last year the Crown Estate spent £10.6m on Scottish Equitable House in Birmingham, a 36,000 sq ft (3,345m2) office building, and, more recently, it paid £23m for St James House in Manchester. Two shops were also acquired in Edinburgh, for £24m.
But the Crown Estate is much more than its urban property. It owns the half the foreshore of the UK – about 1,700 miles – all the seabed out to the 12-mile territorial limit, and the rights to the natural resources of the UK continental shelf, excluding oil and other hydrocarbons. This marine estate is the second-biggest revenue earner. In 1995 it produced £16.5m gross from a host of water-orientated industries: dredging, pipelines and cables, mineral leases, marinas, ports and fish farms.
There are also extensive rural holdings. The so-called agricultural, forestry and mineral estate covers 193,933 acres (7.85m ha) and includes 650 farms, let to tenants. Farm incomes have been reviving, hitting a 10-year high last year. Says Christopher Howes, Second Crown Commissioner and chief executive: “Agriculture has proved very successful. We have seen quite significant rental increases and enhanced capital value.” Agricultural values rose 12.4% last year.
For the most part, the Crown Estate works its agricultural holdings at the margin – selling off bits for development, disposing of poorer-quality peripheral land and buying adjoining farms to extend or consolidate holdings. But three years ago, when farmland was unfashionable, it did splash out on Norwich Union’s agricultural portfolio, 10,000 acres (4,047ha) mainly in East Anglia. Howes cites this as an example of how the investment strategy allows for “purely opportunistic” purchases.
The Scottish interests are lumped together in one administrative unit. Last year, this increased its revenue by nearly a quarter, to £8.2m. About a third of this comes from commercial property, but there are agricultural land holdings and forests as well. Fish farming is also big in Scotland, providing some 30% of revenue.
Howes is clearly chuffed with his steadily upward profits line, all the more so since this was achieved in the teeth of a property slump. He arrived at the Crown Estate in 1989, just as the property market was peaking. But Howes, who had been senior partner in the family surveying firm Percy Howes in Norwich and had a subsequent stint as a DOE civil servant, took a cool look at the situation.
Disturbed by the extent of the building programme to which the Crown had committed itself, Howes ruthlessly cancelled development projects and grassed over sites. These actions helped the Crown Estate to avoid a major cash crisis of the kind that befell that other great landowning institution, the Church Commissioners. “We could have made horrendous mistakes, but we didn’t develop Millbank, and held back on housing,” says Howes.
They didn’t, he admits, escape unscathed. When Ford Sellar Morris, which was developing Crowngate Shopping Centre for the Crown Estate, went belly up in 1991, the Estate had to take the project over. The centre was built out and is now 90% let.
Undoubtedly it helped that, unlike the Church, the Crown Estate was not borrowing to fund its building programme: it is simply not allowed to. This financial straitjacket means that, if it wants to spend money on acquiring or refurbishing properties, the Crown Estate has to sell or lease existing assets. Howes does not regret his lack of borrowing powers. “I think it’s a very, very good discipline. We have to have a high degree of sophistication in managing our assets.” This now involves a five-year business plan, which is continuously updated: capital movements are tracked fortnightly and risks are analysed.
In recent years, the Crown Estate has built up capital reserves of about £100m. Says Howes: “Some £40m will go back into the West End – Regent Street – and refurbishing, consolidating holdings and ensuring maximum growth. We will spend around £33m in Manchester and £5m on agriculture in Scotland, with £32m going on other property investments.”
