Developers have found central Newcastle heavy going, but four proposals have the potential to rejuvenate the city’s core, writes Adrian Morrison
It is tough out there – especially for developers. Finance often cannot be secured without a significant prelet and demand is weak. In Newcastle, attempting any progress in the city centre often leaves developers wondering why they bothered.
Grade-A office space in the city centre is arguably tight, following BSkyB’s deal for 43,000 sq ft at Wellbar Central in Gallowgate, but there is still about 400,000 sq ft available. In this scenario, it will take more than motivational speeches before we see developers’ spades breaking earth.
Four city centre proposals have the potential to rejuvenate the entire core. Large regeneration plans for the Stephenson Quarter and East Pilgrim Street site are strategic schemes and, naturally, longer term. Nevertheless, progress has been frustratingly slow. Buccleuch Property’s Fusion scheme and Merchant Place Developments’ redevelopment of the former Co-op department store are smaller and more immediately deliverable.
Despite movement on some fronts, development is succinctly summed up by BNP Paribas Real Estate’s director of agency, Paul Nicholson, when he says: “No one is pushing ahead with much at the moment. It is very frustrating, but that is just the times we are living in.”
Silverlink’s Stephenson Quarter
Newcastle city council is as frustrated as anyone, so has put its money where its mouth is and given financial backing to private developer Silverlink’s ambitious proposal for the Stephenson Quarter. This move should see a first phase under way on the 10-acre regeneration site next March.
A prudential borrowing deal could see the council financially support Silverlink with up to £30m. It will take a prelet on a proposed 35,000 sq ft office scheme, which it will never occupy. The developer assumes letting risk, guaranteeing the rent for three years, with the intention of repaying the council from future income. Silverlink has secured private equity, but the council’s intervention is necessary to unlock bank lending.
Michelle Percy, director with Silverlink, says: “We get the covenant strength of the council backing this scheme, which will allow us to achieve a 6% initial yield on the investment sale, rather than 7% or 8%, effectively unlocking the development.”
Work on a 250-bedroom Crowne Plaza hotel, the office scheme and a multi-storey car park will begin next March, scheduled for completion by late summer 2014. There is also a longer-term ambition to bring a boutique hotel, business centre, exhibition space and 156 flats to the site.
The council regards the Stephenson Quarter as strategically important and has provided financial support as a buoy for its struggling property market. According to a council statement, the site, located directly behind Central Station, should “reinvigorate a derelict part of the city centre, provide valuable construction jobs, improve the city’s competitiveness and make Newcastle more attractive to inward investment”.
Merchant Place Developments’ former Co-op store
A key strategic site on Newcastle’s leisure and retail pitch could be given the thumbs-up any day now. As Estates Gazette went to press, Newcastle-based Merchant Place Developments was awaiting approval of its plan to redevelop the grade-II listed, six-storey former Co-operative department store on Newgate Street, plus an adjoining building on St Andrew’s Street.
The developer submitted a planning application last August to transform the iconic 150,000 sq ft building into a 231-bedroom Travelodge hotel, with restaurants, shops and a gym attached. It claims that negotiations with the hotel group are at an advanced stage and that 90% of the space is prelet or in lawyers’ hands. The Co-operative, which has maintained a food store since closing its department store five years ago, has agreed to let space in the scheme.
William Grafton, project director at MPD, says: “We are optimistic. We have had a huge amount of dialogue with Newcastle’s planning department and it has been extremely proactive and keen that something happens with this site.
“The building has sat empty for five years but forms a vital link between the football ground, Newcastle University Business School, Chinatown and the new Eldon Square shopping centre extension.”
Subject to planning, a contractor is expected to be announced this autumn, with restaurant and retail space available by autumn 2012 and the hotel fully operational by summer 2013.
MPD bought the 1930s art deco building for £12m earlier this year from the Co-operative Group on behalf of a consortium of investors. It was originally marketed for £25m in 2007, when the store closed. The developer has also qualified for 100% capital allowance through the Business Premises Renovation Allowance.
Ian Parker, a consultant for GVA in Newcastle, says: “I would have thought that with planning in place and prelets secured, this scheme would be likely to go first. It is a building with iconic architectural status. It is in a good location, right next door to The Gate leisure complex and CSC’s southern Eldon Square extension.”
East Pilgrim Street
In February this year, the Reuben Brothers’ property investment vehicle, Aldersgate Investments, became sole proprietor of the 42-acre East Pilgrim Street site. It bought the remaining 50% after its joint venture partner, Canadian asset manager Brookfield, sold its stake to focus on its core business after four years’ involvement.
With the weight of two of the richest men in the world 100% behind the scheme, heightened optimism for its development would be expected. But broad opinion is that it is in a state of flux, with no on-site action to speak of.
Pre-credit crunch, it was hoped that a major department store – Harvey Nichols and Selfridges were two names widely touted – would kick-start an £800m retail-led, mixed-use regeneration of the site between Pilgrim Street, New Bridge Street and Saville Row.
The council endorsed a masterplan for a staggering 4.2m sq ft of development in 2009, including 750,000 sq ft of shops, offices and residential, but it is hard to see how it will progress in the current climate. Developers shelved plans to start demolition in September 2009. The four office blocks to be razed were subsequently marketed for occupation.
Bill Naylor, managing director of Naylors Chartered Surveyors, says: “Pilgrim Street is a civic disgrace. It has been in a poor condition for 30 years and, as buildings have emptied, it has become an eyesore. How on earth could the council let this happen? It has let three development cycles come and go. I am sure parts could have been developed by now, but consent has always been tied to some sort of mega-scheme.”
Naylor adds: “The East Pilgrim Street site is the best location [of these four schemes] without a doubt, but it has been sold several times because people have just lost patience.”
There is continuing debate about whether retail progresses southwards – a natural extension of Northumberland Street’s retail pitch – or, as the council wants, east/west, which does not float many retail agents’ boats.
Buccleuch Property’s Fusion
Acts of God, in the natural disaster sense, are seldom serendipitous. But when 10ft of snow collapsed the roof of a 190-year-old, grade II listed Presbyterian chapel last December, making the building unsafe and leading to its demolition, few could fail to see the opportunity that was then presented to developer Buccleuch Property.
The firm had already included the listed structure as part of its 47,600 sq ft Fusion Scheme and ground work was complete. It was in discussions with contractors and had spent money incorporating the chapel into its plans. Undoubtedly, it was inconvenient. However, an opportunity now exists for a larger, more efficient and, ultimately, more profitable scheme.
Robert Patterson, Sanderson Weatherall partner and Buccleuch’s agent, says: “We were at a stage where we could deliver in about 15 to 18 months from an agreement. Then the roof collapsed and the structure became dangerous. But we now have a totally cleared site that gives us a more straightforward approach to new build.”
Architects are working on a revised planning application, but the council has promised to be accommodating. The proposal is now for 55,000 sq ft with underground parking. An archaeological dig undertaken as a planning condition revealed Roman sarcophagi, so, ghost-riders aside, it is difficult not to see a positive side to the accident. Clearly, a new scheme can be forged without listing constraints to consider.
However, the market conditions do not exist in Newcastle to allow finance to be delivered speculatively. BNP PRE’s Nicholson says: “Like anyone else in the market at the moment, it will want a prelet before progressing – and a fairly substantial one. Then you could see the developer pressing ahead with it.”
