Project glitches: Rising costs and a slowing market have resulted in changes and delays to two regeneration schemes in Falkirk. By Stacey Meadwell
A continental-style marina location and plenty of waterside land on which to develop homes: what could be more attractive to a developer?
ING Real Estate certainly thought it was an appealing proposition when it got involved in the regeneration of Bo’ness harbournear Falkirk.
The problem is that projects of this size – some 750 homes, a hotel and 12,000 sq ft of leisure space on the 68-acre site – take time, particularly when it involves converting a 400-year-old harbour into a marina suitable for modern vessels.
Market cycles can easily be misjudged, and suddenly the figures do not look as attractive as they did two to three years ago.
It is a problem that ING has had to face at Bo’ness, and is being repeated at MacDonald Estates’ Falkirk Gateway nearby.
Hamish Calder, director of project management at ING, says: “We looked at the project a year ago as we were getting close to delivery stage. When we went through the figures, construction costs had risen.
“There was around a 70% increase in costs, which is a significant jump. We couldn’t fix the costs of the harbour work.”
Originally, the expensive harbour regeneration, at the western end of the site, was to be completed first. The easier and profitable housing to the east would follow. With estimated costs rising and the residential market looking rockier, the projected house price inflation required in order to recoup the upfront costs was getting more fantastical.
“We looked at everything but, at the end of the day, we had to look at rephasing the scheme or walking away,” says Calder.
Negotiations with Falkirk council resulted in an agreement to start with the housing first and finish the harbour last, by which time the market, it is hoped, will be healthier.
The revised strategy did not go down too well with some locals, and came under criticism in the local press. It only narrowly passed the council’s approval, with one person having the deciding vote.
ING has agreed to buy plots of land from the council at a fixed price, in return for accepting a much lower profit margin of 12%. Any surplus will be handed back to the council and ploughed into the harbour regeneration.
ING will share profits with the council 50-50 only when the harbour work is finished.
There are detailed plans to be submitted and secured before work can begin, and ING could be forgiven for wanting to take its time in order to ride out the market dip. But Calder admits that the firm will need to get a return on the investment at some point.
ING is hoping to deliver the first phase of the harbour project toward the end of 2010 or early 2011
Maureen Campbell, Falkirk council’s director of community services, is “delighted” to have kept ING on board.
“We want the scheme to happen,” she says. “Starting from the east will still work. Although the most pretty but expensive part of the development is now last, it is also the bit with the best rate of return.”
But even with this change of approach, there are still sceptics.
“One housing development that has gone up in Bo’ness is The Drum,” says Paul Houghton, director at Turley Associates. “It has taken many years to develop despite having some very impressive houses.”
He adds that, owing to its location close to heavy industry sites, Bo’ness is perceived as a tertiary housing area.
Retail park
The market has also turned around and bitten Falkirk council’s plans for Falkirk Gateway, a £500m mixed-use scheme by MacDonald Estates and the Royal Bank of Scotland.
The masterplan includes 538,000 sq ft of business space and a 270,000 sq ft retail park alongside a hotel and residential.
This time last year, those involved were confident of having the retail element ready to open this autumn, but work has yet to start on site.
Prelets are required, but with the out-of-town market struggling against rising petrol prices and reduced consumer spending, lettings have been harder to secure.
There are four prelets in place, but the crucial anchor tenant remains elusive. This in turn is holding up the office element, which is dependent on infrastructure works that will be put in when the retail is developed. The first phase will now comprise 100,000 sq ft of retail and offices, although, again, a start on site is dependent on securing prelets.
Allan Matthews, director of CB Richard Ellis, which is the letting agent for the offices, says there is still demand from occupiers but securing prelets is always tough. “Hopefully, we’ll be on site with the first phase of retail and offices early next year.”
He is hoping that rents of £16-£17 per sq ft will be achieved.
Once again, the council acknowledges the need to be flexible in the current market conditions.
“There was an assumption that the retail would be built out ahead of the offices,” says Campbell. “The office development is tied in with the retail because of the infrastructure, and the upfront infrastructure costs are quite considerable.”
What does provide a glimmer of hope is the fact that office supply in Falkirk is very low. But, as to the residential element of the proposals, Matthews just says that the discussions with potential housebuilders are “on going”.
Stirling at a glance
Stirling Development Agency, a 50/50 joint venture between Valad Property Group and Stirling council, has submitted detailed planning for two office buildings totalling 127,000 sq ft at Forthside (pictured). Prelets are being sought.
Gladman developments has got planning permission to build 95,000 sq ft of offices
DTZ has completed a survey of Stirling city centre and identified the need for more commercial space
