St Modwen and Vinci’s sale of their prized riverfront site at New Covent Garden Market in Nine Elms, SW8, will be a crucial litmus test for the fragile prime central London residential market.
The pair have appointed JLL to sell Nine Elms Square, the 10.2-acre site with consent for three towers ranging from 32 to 54 storeys and totalling 1,821 flats.
Near to the new Northern Line Tube stations at Battersea and Nine Elms, due to open in 2020, and next door to the new US embassy, which will complete before the end of this year, it is the most valuable undeveloped site in the Vauxhall area.
According to book valuations from St Modwen’s latest sets of results, the site is valued at almost £600m. But whether this sale price will be achieved is being questioned by some analysts (see below). The final price will be an important barometer for neighbouring land values and rival developments.
It is anticipated that a deal to sell the site will be struck before the end of the year.
At the Nine Elms Square site, 346 of the flats have detailed consent, all within the tallest tower.
The site also has outline consent for two more residential buildings, 110,000 sq ft of offices and ancillary retail and leisure.
Covent Garden Market Association, which signed a development agreement with St Modwen and Vinci at the start of 2013, also stands to benefit from the sale through overage agreements.
Given the site’s proximity to the US embassy and the prospect of Apple taking a new 400,000 sq ft headquarters at Battersea Power Station, market sources anticipate that US investors and developers may be attracted to the project, as well as Far Eastern and Middle Eastern companies more typically associated with London residential development.
Mark Allan, who will replace Bill Oliver as chief executive at St Modwen in November, is not presently part of the sale process. He is joining the company after 10 years as chief executive of student housing group Unite.
How does the phasing of New Covent Garden work?
In total, 18.7 acres of land, out of a holding of 57 acres owned by St Modwen and Vinci at New Covent Garden Market, is being made available for development by moving the market from the waterfront.
The 10.2-acre Nine Elms Square site up for sale will become vacant when market traders move to an interim site within the development early next year. It will include 1,821 flats, 94 or 5% of which will be affordable. A further 8.5 acres – made up of two areas known as Nine Elms Garden and Nine Elms Grove – will be released for redevelopment in 2022 when a new, permanent 500,000 sq ft market covering 37 acres is completed. Nine Elms Garden and Nine Elms Grove will include close to 1,050 homes, of which around 46% will be affordable.
How much is Nine Elms Square worth?
St Modwen’s full-year results showed a valuation for the 10.2-acre plot of £616m as of the end of November last year, with the whole New Covent Garden Market project valued at £643m.
In its half-year results, St Modwen said its half share of the whole of the New Covent Garden Market project had fallen by £21m, or £42m overall. This means the book value of the site for sale is likely to be close to £576m. However, an analyst note last month on St Modwen by Neil Green of JP Morgan Cazenove predicted that there would be a further £45m hit on the value of the company’s share of the whole project, or £90m overall, in the second half of the year. If this were correct, the value of the Nine Elms Square site would be close to £490m.
What does the sale mean for St Modwen?
According to St Modwen’s latest half-year results, its half share in New Covent Garden Market as a whole is valued at close to £300m. This equates to around 25% of its portfolio. A sale of Nine Elms Square would not see St Modwen exit the site entirely, but it would dramatically reduce its exposure to the erratic central London residential market and rebalance its portfolio away from one focal point. St Modwen is best known as a regional regeneration company associated with projects such as the transformation of the automotive centre of Longbridge, near Birmingham. In its most recent results, with the company turning 30 years old, it took the opportunity to stress “strength in the regions” as one of its four fundamental business attributes and under the stewardship of new chief executive Mark Allan the proceeds from any London sale could be used to further strengthen this attribute.
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