Profitability at Grosvenor’s £973m build-to-rent scheme in Bermondsey, SE1, is expected to nearly halve after the developer upped the amount of affordable housing to 35%.
Earlier proposals for the redevelopment of the former biscuit factory site, which were rejected by Southwark Council in February and called in by the London mayor in May, recommended 27.5% affordable housing, a quota that would have delivered a 12% internal rate of return for the landed estate.
However, Simon Harding-Roots, executive director at Grosvenor Britain & Ireland, said it had now halved the IRR to 6.5%, calling it a “significant reduction” and said the affordable element had “definitely” affected the expected returns.
Increasing affordability
The increase in the percentage of affordable housing in the revised plans for the 12-acre site will see Grosvenor deliver around 482 homes at affordable prices, 70% of which will be at discounted market rents of around 40%, and 30% available to households on the council’s social housing waiting list at equivalent social rent but without a right-to-buy option.
Grosvenor had previously proposed to offer all its affordable provision at an average 25% discount to market rent.
The inclusion of social rent-equivalent homes in the plans means Grosvenor will now provide them in buildings separate from the rest of the scheme and bring in a registered provider to manage them.
To accommodate the extra affordable housing, the developer is increasing the overall number of homes from 1,342 to 1,548. It is aiming to achieve this densification by increasing the heights of several of the buildings, with the tallest tower increasing from 28 to 35 storeys.
The previously proposed 42,786 sq ft of retail space will be reduced by 14%.
Harding-Roots said that Grosvenor remained committed to delivering the scheme despite the planning setbacks.
“Grosvenor bought it with the intention of having a long-term position in Bermondsey to diversify the portfolio – not just geographically, but also by stock,” he said. He added that Grosvenor would therefore be able to provide housing “at a more affordable level” than the estate has a reputation for.
“We’re going out of our way to make sure it’s not a transient community and that people have long-term rental, so there’ll be secured tenancies,” said Harding-Roots. “We really want to see people starting off in the studios and making their way through the one-, two- and three-beds and making it their home.”
“Bringing about positive and lasting change for Bermondsey has always been our focus,” he added. “However, our first planning application was not good enough. We acted in good faith but it didn’t meet the council’s expectations.
“Since then, we have worked hard to address the clear call from the community, council and mayor to deliver more affordable housing while ensuring that the project, and its many other benefits, can become a reality.”
A public hearing on the proposals is expected to take place before the end of the year.
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