Harworth’s hope for a levelled-up UK

The rain is pouring in Shropshire as EG arrives at what was once the site of the Ironbridge Power Station. Even if the area still has a dramatic beauty during the downpour, it is a far cry from the picture-perfect artist impressions of Benthall Grange, the 1,000-home redevelopment of the site being led by regeneration specialist Harworth Group. But the bad weather will pass. And Lynda Shillaw, chief executive of Harworth since 2020, knows the importance of looking past gloomy forecasts. “The market is not in its happiest place at the moment,” Shillaw says. “But Harworth is a through-the-cycle business. “That is our story, that is our strength. There is nothing that we do that does not take at least five years from acquiring [a site] to building on it. And most take 10-15 years if we have to get them allocated and take them through the planning system.” Hold your nerve A few weeks earlier, Harworth posted first-half results that Shillaw said showed “good progress” in terms of its strategy, but which were nonetheless down sharply from a year ago. Revenue of £18.2m dropped by two-thirds, while pretax profit stood at £4.5m, plunging from almost £100m a year earlier. As of late October, the company’s shares were trading at 98p, compared with an EPRA net disposal value of 195.7p per share. Over much-needed coffee in the relative warmth of the Benthall Grange site office, Shillaw acknowledged the difficult task of running a real estate company in today’s choppy markets. “Am I concerned about it?” she says of the trading discount. “Yes, because any chief exec will be if they’ve got a significant discount to NAV. Do I think it fairly reflects the underlying value of the business and its assets? Absolutely not. “But UK PLC is investment off, and real estate is investment off until we get some interest rate movement inwards. I think some of the sectors will then start to go like a rocket again. “But we are a long-term business and we are therefore a long-term investment play. This is a low point in the cycle, but it is a cycle and we have all been through them before.” Shillaw hailed the hardiness of the company’s industrial and residential portfolios over the past 18 months. “Between H1 2022 and H1 2023, we’ve kept our EPRA NDV stable, when 60% of our portfolio is exposed to industrial and logistics and that sector saw 300 basis points-plus yield growth,” she says. “What that underpins to me is the resilience of our model.” On the residential side of the business, Shillaw says the company has seen stable numbers of housebuilders bidding for its plots. “We’re now at over 20 housebuilders, both regional and national, that we’ve worked with,” she says. “A lot of it is repeat business. They know the product that they are going to get from us, and they know the quality of the products.” But there have been changes. “In the first half of the year, the regional housebuilders were more prevalent in the bidding pool,” Shillaw says. “Over the summer we’ve seen the nationals coming back in on a very selective basis. “Housebuilders have been doing what they said they were going to do. They have been really clear with the market that it’s all about selective acquisitions.” Harworth’s build-to-rent ambitions have been dealt something of a blow as the market shifts, Shillaw says, but mostly in terms of their timescale. “We launched [the 1,200-home Project Spur portfolio] in May 2022 in a really hot market,” she says. Then rising interest rates discouraged potential investors that required debt to make deals work. “Investors were really cautious,” Shillaw adds. “They stopped looking through planning risk and they stopped looking through short-term market risk. The diligence became more intensive. Bluntly, we weren’t prepared to take the cost risk and the planning risk, and they weren’t prepared to take the price risk and the planning risk.” Harworth is now finalising contracts with its preferred investment and construction partners for the BTR sites. But the parties need to see the right volume of sites passed through planning first, and that, as ever, is a headache. “We made an assumption – maybe naively, but it felt perfectly reasonable at the time – that on a site where we had outline consent, getting reserved matters for a phase was going to take us six months. We are close to 12 months,” Shillaw says. “The housebuilders are in the same boat. They are taking build-to-sell phases through reserved matters, and it’s taking them just as long. “I don’t want to blame the planners, but the planning system is not helping to deliver housing in this market.” Politics as usual What needs to change for the system to provide better support? “I think planning at a local level is weaponised,” Shillaw replies. “I think sometimes there is a lack of clarity over what is required to make a scheme work that isn’t just somebody’s opinion. Resourcing is an issue and has been for a decade. “We need to look at complexity, we need to look at speed, we need to look at depoliticising it where we can. We have to have an ambition that the planning system is there to unlock and enable growth and support that.” The problem plays into the very purpose of Harworth’s existence, the chief executive adds. “If we can’t bring growth into the UK economy, which is jobs and homes, then it’s almost like, what’s the point?” she says. “Collectively as a society, we’ve got an obligation to all these kids and generations coming through to build something that is great for them. The planning system is an enabler to that, but it has to work much better than it is at the moment.” Some politicians seem to get that, Shillaw says. She was impressed by much of the talk at the Labour Party conference, and was not alone in perceiving a party keen to build better bridges with real estate as an industry. “What they demonstrated was a real understanding of the issues of planning and the importance of planning to enable growth,” she says. “That to me – if that gets delivered, if they end up in government – is massive. Our industry is a huge investor in the UK but also an attractor of occupiers and investors.” In comparison, the Conservative conference disappointed due to what was not said. And Shillaw says many recent decisions from the government will discourage investment in the country. “Their movement on delaying some of the things we need to do to get to net zero has had a big destabilising effect on industry and on investors,” she adds. “I don’t think that was their intent, but that is the consequence. For investors to come into the UK or companies that are here today to continue to invest, investment 101 is ‘Where’s the risk? Have I got clarity and certainty?’ And on that basis you make a decision. That lack of clarity will make investors pause.” Then there was the scrapping of the northern section of the HS2 line. “If you live in the north of the country, the trains don’t work. End of. And they haven’t worked for a decade,” Shillaw says, adding that a long-term outlook should have been taken before the section from Birmingham to Manchester was cancelled. “In the life of a G7 economy, 50 to 60 years to wait for the benefits to accrue from something like HS2 is absolutely nothing. Look at the Jubilee line, look at the Elizabeth line – they were probably 30 years in the economic case being made. “The challenge around HS2 for any government is yes, there’s an economic point. But if you cast your mind 50 years into the future, infrastructure is a key part of closing the productivity gap and changing outcomes.” That belief in the good that real estate and infrastructure can do runs throughout Shillaw’s hope for the future of the country – and runs deeper than a soundbite. “We operate in the industrial heartlands of the country in a way that not many do,” she says. “We do that whether or not there is a levelling-up policy. We’ve been here way before that phrase ever hit anybody’s vernacular, and we will be here a long time afterwards.” But it seems few politicians are willing to look as far ahead as Shillaw. Time to reach for the umbrellas – for now at least. To send feedback, e-mail tim.burke@eg.co.uk or tweet @_tim_burke or @EGPropertyNews © All photographs from FTI