In the next few weeks something amazing is going to happen in Rochdale.
The financing deal that will unlock a long-delayed £70m Rochdale Riverside development will be agreed in principle. Due diligence and legal details will occupy the next few months and an announcement will be made in the summer by the as yet unnamed funding partner. Planning permission was granted in mid-April and all systems are go. It’s been a long, long wait.
For much of the last decade even suggesting that a private sector investor might want to sink eight figures into Rochdale would have had retail market observers howling with laughter.
It’s been a painful journey for Rochdale Riverside. The council launched plans for a £100m scheme in 2006. Wilson Bowden were initially selected as preferred developer in 2008 for a £250m town centre redevelopment and proposed a Debenhams and Marks & Spencer-anchored development of 350,000 sq ft with 282 apartments. A legal challenge into the initial tendering process meant the project was retendered and in 2009 Genr8 were selected, but progress was subsequently slow.
Kajima came on-board to help cover the early costs in 2010, but it wasn’t until 2012 that a legal agreement with the council put the scheme on a firm footing, and it was obvious it would take even longer to get hold of the site occupied by the bus station and council offices. In the meantime the original Wilson Bowden plans were cut down to a more digestible 200,000 sq ft.
This is backed by a lease to Rochdale council for 35 years, which opens the door to institutions and global investors
Prelets in 2015 to Marks & Spencer (relocating within the town and taking 50,000 sq ft) and Next (new to Rochdale, taking 22,000 sq ft) gave the scheme a boost. Today, it’s on rocket fuel. Reel Cinemas are on board with a six-screen venue, and lettings on many of the scheme’s 24 units are understood to be advanced. Contractors are being shortlisted with a view to an August signing and all being well, Rochdale Riverside will be onsite in September for a mid-2019 opening.
Genr8 director Mike Smith can’t conceal his relief but says the real story is the innovative funding approach taking by Rochdale council.
“This is backed by a lease to Rochdale council for 35 years, which opens the door to institutions and global investors, and we are talking to their annuity funds. We recover our £2m initial investment when we go unconditional on the funding,” he says.
“It’s been a challenge. When we first got involved the funding market was at a low point, the original scheme was overambitious and never deliverable, not least because it hinged on a large foodstore – the market for which simply disappeared underneath us.”
“The key to getting this far has been Rochdale’s approach to funding. You need that kind of strong public sector partner – who can be flexible – to allow us to get to the funding arrangement we’ve got.”
Rochdale has taken things a step further: in May, it completed on its first buy in the town’s retail investment market as it inaugurates a £30m property investment programme intended to raise revenue using low-interest long-date loans from the Public Works Loans Board. The first deal is expected to be around £5m with a return of 6.5% which, after repaying the capital, generates 1.5% for the council – and it will be a model for what follows.
The investment programme could expand to take in the council’s existing £600m asset base – none encumbered by debt – and potential tie-ups with other local councils to increase lot size. Lambert Smith Hampton is advising.
The Riverside arrangement stands in stark contrast to neighbouring Oldham. There the borough council had bravely decided to self-fund the Prince’s Gate development designed to deliver a new 51,000 sq ft M&S, along with another 78,800 sq ft of additional retail. But late last year M&S pulled out of the scheme as part of a nationwide shut-down of 30 stores. What this change in circumstance means for the Prince’s Gate scheme is unclear.
In a statement issued after M&S pulled out, Oldham council leader Jean Stretton said: “Marks & Spencer were clear that although this means they will not be taking retail space at the Prince’s Gate site, this does not mean that they’re necessarily closing the door on coming to Oldham. We are continuing to have discussions with them about this and we are hopeful of a positive future outcome.”
It comes at a time when there are other market dynamics at play – the rise of leisure demand, and a changing hierarchy in Greater Manchester retail offer.
Warwick Smither, partner at Cheetham & Mortimer, and a long-time adviser on Rochdale retail, says the last 10 years of effort will be richly rewarded. Today around 99,000 sq ft of the scheme’s 185,000 sq ft is prelet or in solicitors’ hands, with another 25,000 sq ft expected to go into legals this month.
He explains: “There’s a long list of newcomers and well-known names – Pizza Express, Nando’s are keen – and we’re hoping the effect follows down into Yorkshire Street because we’ve only got 24 units and that’s not so many, so occupiers now attracted to Rochdale may look outside the scheme.”
He says shopping habits in the wider area are changing. “Bury has already pulled in a lot of shoppers from the south of Rochdale – Heywood, Middleton – and Oldham’s leisure offer is changing destinations too, although the loss of Marks & Spencer is a blow.”
The key to getting this far has been Rochdale’s approach to funding. You need that kind of strong public sector partner – who can be flexible – to allow us to get to the funding arrangement we’ve got
Long-term doubters of the Rochdale scheme fell silent about 12 months ago. The only question now is whether success in Rochdale makes it harder for Oldham.
“It’s not meant to hurt Oldham,” says Smither, who believes the two catchments are sufficiently separate. The example of successful retail development next door may give Oldham a boost, he hints.
For now, Rochdale’s long retail redevelopment journey seems to be drawing to a close. Next door in Oldham, it still seems to have a way to go.
Rochdale industrial market plans
Rochdale council’s efforts to kick-start retail development have now extended into the industrial market.
The council provided gap funding – said to be under £500,000 – to enable Wilson Bowden and funder Standard Life to go ahead with the speculative development of the 216,777 sq ft Kingsway 216 unit. The warehouse, on the 420-acre Rochdale Kingsway business park, is immediately next to Junction 21 of the M62 motorway. Building work completed late last year.
Quoting rents are £5.75 per sq ft, and there is a growing chance that the council will not have to pay out – and may indeed make a small surplus. Ropemaker is understood to be quoting £6.50 per sq ft on its four units of 35,000 sq ft to 40,000 sq ft, 55,000 sq ft and 75,000 sq ft on Plot K. So once incentives are taken into account, net effective rents at Kingsway 216 could exceed appraisal expectations.
Jason Print, partner at joint letting agents Gerald Eve, denies wide-spread rumours than a deal has been done to let Kingsway 216.
“We’re in discussions, but that’s all,” he says. “We had good interest, but it landed on the market six months ago when half a dozen other North West speculative sheds also reached practical completion. But we’re hopeful.
“It’s probably fair to say this would never have been built without the council’s intervention. They’ve always had an open door for us.”
Rochdale council is now creating a £4m pot to fund smaller speculative industrial units. The aim is to provide around 40 units over four years in sizes ranging from 700 sq ft to 10,000 sq ft.
Joint letting agent at Kingsway is P3 Property.
