Royal Pier Waterfront, Southampton Financial Viability Assessment August 2015
1. INTRODUCTION CBRE has been instructed by Royal Pier Waterfront (Southampton) Limited ( RPW ), a company owned by the Lucent Group, to assess the financial viability of the Royal Pier Waterfront scheme in Southampton. The viability assessment is required in support of the Planning Application ( PA ) that is being submitted for this development. The basis of the CBRE appointment is to assess the level of Section 106 / CIL contributions and quantum of Affordable Housing the scheme can viably deliver. The existing site encompasses the former and currently dilapidated Royal Pier structure, the Gate House building presently occupied by Kuti s restaurant, Mayflower Park, the De Vere car park site as well as the marshalling yards and terminal building for the Red Funnel car ferry. The De Vere car park sits outside the current application boundary and the proposals for this site have therefore been excluded from the viability assessment. The PA for the redevelopment seeks planning permission for a mixed used development comprising a range of uses including residential, offices, hotel, leisure, cafes, retail, bars and restaurants. The application also provides for an enhanced and extended Mayflower Park, new marine basin, a continuous waterfront promenade as well as the relocation of the Red Funnel terminal to Trafalgar Dock. Purpose of the Report A major development of this nature will only be brought forward it if is deemed viable in delivery terms. A realistic level of affordable housing and planning contributions therefore needs to be agreed that does not hold back viable and sustainable development of what would be a premier new offer for Southampton. Following a thorough assessment of the constructions costs, value, finance requirements and the phasing strategy required to deliver the scheme it is CBRE s considered opinion that the development cannot viably deliver a planning compliant level of Section 106, CIL or Affordable Housing. Page 1
2. BACKGROUND There are a number of different partners and landowners involved with the Royal Pier development. These parties are:- ¾ Southampton City Council ( SCC ) is the landowner for Mayflower Park. ¾ Associated British Ports ( ABP ) is the landowner for the land and water areas of the existing pier and the Red Funnel car ferry area. ¾ The Crown Estate is the landowner of the remaining areas of seabed to be reclaimed from the River Test. ¾ The project will be undertaken by RPW (Southampton) Ltd; a company owned by the Lucent Group. The above partners signed a Conditional Landowners Development Agreement (CLDA) in February 2014, which sets out the terms and conditions for delivery of the project. Location & Description The Royal Pier site covers an area of approximately 35.4 acres (14.34 hectares) located immediately to the south of Southampton "Old Town". The site is bound to the south by the River Test, to the east and west by ABP operational land and to the north by West Quay and Town Quay Road. Immediately to the east of the Royal Pier site is Town Quay Pier, which extends for approximately 400 metres and provides a mix of office, retail and food and drink accommodation. The Red Funnel Hi- Speed service to the Isle of Wight and the Hythe Ferry embark from the east side of Town Quay which also includes the Town Quay Marina. As demonstrated by the diagram below, the site provides the break between the Western Docks and Eastern Docks and represents a major opportunity to provide an active, vibrant waterfront for Southampton, which is intimately connected with the city centre. Southampton Royal Pier Site Location Page 2 Source: Royal Pier Waterfront (Southampton) Limited
The Proposed Development The site is currently recognised as one of SCC s seven VIP projects under its published City Centre Masterplan. Historical proposals to develop the site date back more than 40 years however the recent development proposals were formulated in 2010 and subsequent negotiations with the landowners led to the signing of the CLDA in early 2014. The masterplan proposes both the reclamation of 14.45 acres (5.85 hectares) of land from the River Test and the creation of a marine basin that will become a focus for the new waterfront development. The reclamation from the River Test includes the area occupied by the existing dilapidated pier. The western section of the reclaimed land will form an extension to the existing Mayflower Park. The proposed masterplan for the site has the potential to deliver approximately 150,000 sq m of development. This includes 730 new homes, 47,000 sq m of offices, 14,000 sq m of retail, an indoor market, a 250 bedroom hotel, a casino, over 10,000 sq m of cultural and civic uses, 7,400 sq m of leisure space and almost 2,000 sq m of conference accommodation. In addition the proposed scheme will provide significant transport and public realm improvements including: ¾ A network of connections to Southampton City Centre linking the Old Town with the waterfront; ¾ A network of high quality public spaces including public squares and a new accessible waterfront; ¾ An extension and improvement of Mayflower Park not only to provide a single, contiguous site for the PSP Southampton Boat Show, but also a tremendous asset for the city throughout the remainder of the year. The redevelopment also proposes the relocation of all Red Funnel operations to Trafalgar Dock. This will allow Red Funnel to operate both the Red Jet Hi- Speed and Ro- Ro car ferry service from a single terminal building. Page 3
3. FINANCIAL VIABILITY IN PLANNING In preparing the financial viability assessment, CBRE has had regard to published guidance on the approach to assessing financial viability for planning purposes. The context of achieving sustainable development stems from the National Planning Policy Framework ( NPPF ) which states that:. To ensure viability, the costs of any requirements likely to be applied to development, such as requirements for affordable housing, standards, infrastructure contributions or other requirements should, when taking into account of the normal cost of development and mitigation, provide competitive returns to a willing land owner and willing developer to enable the development to be deliverable. The NPPF also refers to the use of planning conditions and obligations and advises that where obligations are being sought: local planning authorities should take account of changes in market conditions over time and, where appropriate, be sufficiently flexible to prevent planned development being stalled. RICS Guidance Further detailed guidance provided by the circular Financial Viability in Planning (GN 94/2012) published by the RICS states that: LPAs should be aware of the cumulative impact of all planning obligations and scheme requirements sought on development viability. It is not just section 106 obligations and CIL that can impact on scheme viability. Other scheme requirements and planning benefits sought can have a significant effect it is for decision- makers to recognise the requirement for sustainable development whilst also ensuring the development is deliverable in accordance with the NPPF. In accordance with the above guidance, it is also noted the following elements will need to be considered by decision- makers to make the development acceptable but may also impact on scheme viability: obligations and levies; provision of site specific highway improvements; design standards, including sustainability measures; land use mix; and abnormal scheme costs, including ground works. Given the range of potential demands on a development scheme such as this, it is necessary to balance the above competing requirements within the scope of what is viable, deliverable and acceptable in planning terms. Southampton City Council Policy In addition to the National and RICS guidance outlined above there are provisions with Southampton City Council s Affordable Housing Policy and CIL policy that enables contributions to be assessed on a subject to viability basis. It is worth noting that the Inspectors report into the Southampton CIL made specific reference to this scheme, where it was acknowledged that in exceptional circumstances CIL relief may need to be applied to enable delivery. Page 4 4. CONCLUSIONS & RECCOMENDATIONS
A detailed viability assessment has been undertaken by CBRE to assess the scheme s ability to make a CIL contribution and provide affordable housing. The assessment followed standard industry practice for assessing the viability of such schemes and was based on sound property market data, research and analysis. The viability study has found that the scheme is unable to provide any affordable housing or make a CIL payment and still be deliverable. It is very important to note that the development can only come forward following significant upfront expenditure to create the site. This involves the reclamation of 14.45 acres (5.85 hectares) of the River Test needed to create a significant proportion of the development site and the relocation of the Red Funnel Ferry to Trafalgar Dock. It is widely acknowledged that securing funding for infrastructure delivery has prevented many large strategic sites from coming forward. Infrastructure funding is seen as risky by mainstream lenders and therefore developers must seek finance from equity investors, who require significantly higher returns on their capital. Indeed the issue with infrastructure funding has been recognised by the government and it has sought to aid the delivery of schemes by creating the Large Sites Infrastructure Programme (LSIP). This 1bn initiative is aimed at schemes capable of delivering more than 1,500 residential units and as circa 730 units are proposed for the Royal Pier development it would not qualify for LSIP funding. The significant infrastructure provision required to deliver the Royal Pier scheme represents an abnormal cost item that developments are not typically required to provide. It is the upfront provision of this infrastructure and the time required to construct it that renders the scheme unable to provide any affordable housing or make a CIL payment. If the scheme is required to provide CIL and/or affordable housing it will not be delivered. This is because there would be insufficient funds generated to provide a reasonable return for a developer and the equity investment required to deliver the infrastructure. Whilst the development may not be able to provide affordable housing or CIL the scheme will have a positive impact on the City of Southampton. The project will see the regeneration of a dilapidated site; jobs created - both short term during construction and long term in the offices, hotel, casino and retail premises; significant levels of public realm will be provided and a high class scheme will be developed to create a waterfront of international standing. Page 5