Bad timing? Last year Berkeley’s plans for the Royal Worcester site looked just the thing. Now it has to sell the scheme into a weak market. By Nadia Elghamry
Development can be a bit like doing the tango. You are whirled around the planning department while trying not to step on any of your partners’ toes, and gyrate with stakeholders in a bid to strike a note with at least some of them. But the most important thing, throughout it all, is keeping in time.
For example, last year, Berkeley Group announced its 7-acre mixed-use development, called The Waterside, on the site of the 18th-century Royal Worcester porcelain factory. Plans included 400 homes and 50,000 sq ft of offices. The residential market was booming, offices appeared to be stable and Berkeley’s tango seemed to be well timed.
Now, as it prepares the sale of its residential stock and the delivery of the first phase of offices this autumn, it is a very different story.
Last month, Nationwide reported the biggest fall in house prices since it began its survey in 1991, and office take-up is dropping. Will Berkeley’s scheme miss the beat?
Funding market
According to Colliers CRE, take-up in Worcester this year racked up 22,000 sq ft by July (see graph). Compared with half 2007’s total, it is down by one-third. At the same time, availability of prime office space has doubled from around 40,000 sq ft in 2007 to 77,000 sq ft.
Development is definitely getting trickier in Worcester. Jason Adderley, director at Stoford Developments, describes the funding market as “disappointing at the moment”.
AXA REIM called the market early when it pulled back from speculatively developing 200,000 sq ft at Stoford’s Stonebridge business park in Droitwich around 15 months ago. “At the time I didn’t think so but, with hindsight, that was a really good move,” says Adderley.
LaSalle Investment Management is being more bullish about the region. It is backing the speculative building of smaller- and medium-sized units at Stoford’s Vale Park, Evesham.
Adderley adds that, while occupier demand is bearing up, the summer “has come a bit earlier than normal”.
It is encouraging, he says, that occupiers are getting more realistic: “With yields going south and construction costs going north, there are not going to be huge incentives for them. We’ve got to have a margin, and we can’t trim it any more.”
As a result, Adderley is confident that Stoford will snag an occupier for its Droitwich site. It is in discussions with what he calls “not a logistics user, but an indigenous company”.
For many, The Waterside will be the bell-wether of the office market. Simon Quantrill, partner at Knight Frank and agent on the scheme, brushes off disappointing take-up figures. “Worcester hasn’t had anything of good quality available for as long as I can remember,” he says.
The extensive refurbishment of the 6,700 sq ft Slip House will be the first test of demand for space at The Waterside when it is completed in October. Quantrill says Berkeley is in discussions with a local professional firm to take the building.
However, a similar thing was said last year. Quoting rents on the scheme are £17.50 per sq ft for a new-build, which could move rents in the city up from £16.50 per sq ft.
Turning to residential, Quantrill’s colleague Mark Evans, partner for residential development at Knight Frank, admits that sales, as everywhere else, have been slower. However, investment has been strong, says Evans, mainly driven by locals looking for retirement flats.
“We haven’t had the investment clubs, so we haven’t, to date, had to deal with credit tightening there,” he says, adding that no one has walked away from their deposit.
More than 400 units are planned on the site and 103 have been sold. But the roll-out has been measured. Out of 12 two-bed flats on the water’s edge, five are left to sell, priced at £250,000. Away from the water, none of the four released so far has been sold. Seven are yet to be released with a further 40 to follow.
For some, the fact that anything is happening at the Royal Worcester site is a huge relief. Geoff Palmer, principal economic development officer at Worcestershire council, says: “It was a huge blow when Worcestershire porcelain moved out, but now, in terms of development, there is a lot happening.
“I can quite understand developers’ reluctance, but our plans are looking at a 15-year period. At some point, demand will catch up and overtake the current reluctance.”
The Waterside, Worcester: the first office space at Berkeley’smixed-use scheme is scheduled for completion in October
Industrial land supply is bone of contention
The availability of industrial land remains the biggest gripe of Worcestershire’s property industry.
“It is completely planning related,” says Jason Adderley, director at Stoford Developments.
While applauding moves to simplify the system, he says: “It is within the council’s powers to look at the use-classes that have been consented.”
He points to a site in Malvern at Grove Farm that has B1 consent. “It should be looking at relaxing some of the constraints and at a wider mix of uses,” he says.
Geoff Palmer, economic development officer at Worcestershire council, says the important word is “appropriate”. He adds: “We need to be wary about too many big-shed distribution schemes.
“Grove Farm is a large site that breaks the boundaries of the city, and there are access issues that need to be sorted out. It needs innovative solutions, particularly given the government’s reluctance to hand over money for any project.”
For developers, that will probably mean a deeply unpopular plunge into increasingly shallow pockets.
