Commercial Property
Is regional development agency Advantage West Midlands delivering much of an advantage to the region's commercial property market? David Thame investigates read on....
ADVANTAGE TO WHOM?
Is regional development agency Advantage West Midlands delivering much of an advantage to the region's commercial property market? David Thame investigates
When it comes to who has been one of the most active players in the region's commercial and particularly industrial property market in recent years, it might be a surprise to many to learn that the answer is actually one of the government's nine regional development agencies, namely Advantage West Midlands (AWM).
Its ambitious programme of buying up huge chunks of West Midlands real estate - often at prices well above market rates, according to some observers - in order to kick-start the regeneration of brownfield sites has caused more than a stir among the region's property players in recent times.
The grumbling - and it often has been grumbling - on the part of the industry has essentially been built on the feeling that the free market should have been left to decide what happened to these sites and who developed them. And what's more, with so many sites under its wing, critics said there was no way that AWM would be able to bring all the sites to fruition at the same time. It was inevitable that some prime sites would remain undeveloped.
Has the grumbling been justified? Some would certainly argue that they told you so now that the sale of most of AWM's 1,200 acre property portfolio is being considered by agency bosses. The move comes as pressure on the agency to see action on some of its larger sites - not least the 100 acre Ansty site at Coventry - grows stronger.
A tightening of the agency's £3300m budget has meant that some schemes haven't won the funding they expected. AWM admitted in April that its budget for the year was largely committed. Informal indications that projects would win support did not, as a result, turn into cheques.
In the circumstances it's hardly surprising that AWM hasn't won universal praise. Far from it. No less a figure than Birmingham City Council's cabinet member for regeneration blamed "weak management" at the agency for the financial problems which, he said, slowed or halted development in the city's Eastside and North Solihull.
Getting development going on AWM's 1,200 acre property portfolio was always going to be tricky. The agency's job is, as we have already touched on, to attempt to revive the sites that the private sector might otherwise neglect.
Sometimes that simply takes time and patience. The North Staffordshire Regeneration Zone focused on a 288 acre site in the Chatterley Valley will take time to plan. The area's regeneration hopes also depend on ministers agreeing to the creation of a so-called "special delivery vehicle" to implement the plans. Since ministers like to take their time to ponder such complexities nobody is expecting action any time soon.
The government's National Audit Office warned that regional development agencies (RDAs) in general aren't delivering as much as they should, because of bureaucracy. And, according to researchers at business consultancy Ernst & Young (E&Y), the nine English RDAs are almost constitutionally incapable of the kind of bold decision making that property development requires.
The experts at E&Y say the RDAs are too weak to deliver major property projects and that senior officers are scared of making big decisions. Sites get trapped in an "options loop" as the agency considers, re-considers and considers again all the exciting things it could do with its land. In the meantime nothing much happens. Fear of getting it wrong and natural apprehension slow things down even more.
AWM is one of the agencies now being advised by E&Y - so options loops and fear of failure should no longer be problems - but private sector observers still detect weaknesses in the public sector's position. Developer St Modwen has worked with local authorities the length and breadth of the UK and is in talks with AWM about the mighty Longbridge site. Chairman Anthony Glossop doesn't want to point the finger at any particular agencies, but agrees with E&Y that the public sector struggles to get property development right.
"It's a question of their processes, which don't lend themselves to commercial property development. They find it difficult to evaluate risk - and then to take risk. They also find it difficult to manage professionals so that they draw the right conclusions from the advice they have been given. That's because in many cases you have to say to a professional 'that may be your 100 per cent safest course of action, but that isn't the right course.' But a public body finds it difficult not to do exactly as they're advised, even if it's not cost-effective."
The 100-acre Norton colliery site at Stoke is, says Glossop, a case in point. Today the site is cleared and the first land sales have taken place, with David Wilson Homes buying 13 acres to build 600 homes.
Glossop explains: "Stoke council were told the site had a minus value, that simply owning it would cost them. Because we have a joint venture with them on other sites they asked us, as a favour, to take a look at it. We said it's not a minus value, it's a plus value. Eventually we won the site in open competition, we paid them for the land and then did the clean-up. About half will be developed. It's a classic example of how something had sat around for some fair time before we came along. In Stoke we've reclaimed three colliery sites which, for all sorts of good reasons, wouldn't have happened if left to the public sector."
The public sector - in the form of AWM - recognises that it needs help. Steven Holland, head of asset management at AWM, says it plans a radical solution to its £3200m portfolio.
"We spent the last few years doing site assembly work in strategic areas. We've now got to start to deliver the sites and bring them forward and we will be pursuing options with the private sector where possible. We are doing a strategic review of the portfolio at the moment - to decide whether we put sites into a package for disposal, like other RDAs, or proceed with sites individually. We have no fixed ideas in our mind. We expect to have made decisions by the end of the year."
The agency has a variety of smaller sites in the 50-100 acres range and some much larger ones in a land bank spread around the region. They stretch from a nine acre site at Lichfield City Wharf, likely to see a mixed industrial, commercial and residential scheme, up to giants such as Ansty, the Black Country's Wobaston Road and Peddimore near Sutton Coldfield.
Holland says: "What we're trying to do is to prioritise with our partners. We'd rather invest our funding in the early stages - our expertise is in land assembly and reclamation and that's where we should be using our resources. We are not developers. A lot of agencies have been averse to dealing with the private sector - but we need their expertise."
Exactly what AWM is doing with some of the smaller sites - such as the 23 acres acquired on the fringes of Jaguar's Birmingham plant at Castle Bromwich - leaves some observers baffled. They wonder why nothing much is happening on such valuable and well-located real estate. Bafflement could, however, simply be the result of shallow thinking. Wiser heads say AWM acquired the site in case Jaguar wanted to expand.
Progress on the smaller sites is, however, overshadowed by work on the high-profile schemes. And two headline grabbing sites have been moving slowly.
At Ansty AWM is still in talks with British Land and Marconi about the size and scope of a development. Ansty was to have been the site of a sparkling new £3250m HQ for Marconi - but turbulence at the telecoms giant has meant original plans have been shelved. Ansty would have won £325m in government grants had it gone ahead, hopefully stimulating the creation of a hi-tech business cluster.
The deal involved a complex land swap with AWM and British Land to allow AWM to take control of the existing site at New Century Park. AWM says it would be "very disappointed" if it hadn't some progress to report by the New Year.
At Longbridge AWM has paid £35.6m to add another 18 acres to the 40 acre site it acquired last year. The deal with MG Rover is intended to expand the opportunities on the A38 corridor, a strategic area for AWM investment, which will one day become the core of a proposed technology belt running from Birmingham to Worcestershire. AWM will spend another £35m on infrastructure work to make the site useable.
Getting development going has proved slow work. Last winter plans for a £3100m business park were revealed, involving 30 new buildings for hi-tech companies. Building work was due to begin late next year. But since then the scheme has gone quiet.
Holland says: "We're continuing to work with our partners, MG Rover and St Modwen, and hope to be in a position to develop very soon after the New Year."
Nigel Dollin, Jones Lang La Salle's head of industrial property in Birmingham, is forgiving. He says that people who spend all day immersed in the market don't give enough credit to the wider motives of the RDAs.
"They have got a very difficult job to do, and their remit isn't always in line with the market. They might go and buy a site but their aspirations aren't market-led and their criteria might not be those that the market is working to, so it doesn't surprise me when they make acquisitions that people raise eyebrows."
And if it takes time for sites to be developed Dollin is prepared to be patient. "It takes time whether you are a private or a public sector body. One of their remits is to acquire contaminated land which currently doesn't stack up for a developer to buy and to make it a marketable commodity. And you can't do that overnight."
It could all change in January if AWM decides to sell off its portfolio, as have several other RDAs. The cold, clear, decisive impact of private-sector involvement could produce results. At least that's the hope supply outstrips demand for west midlands industrial space
You have to be a naturally confident kind of person to develop a 2m sq ft industrial and warehouse scheme. So it's just as well that the men and women behind Fropus - the consortium comprising Frontier Estates, Opus Land and Prudential - are upbeat about the prospect of lettings at their 95-acre distribution scheme at Witton on the outskirts of Birmingham.
The Hub already has one letting - IMI, which used to occupy the entire site and which will take 85,000 sq ft. The steel works for its unit are now in place. A spokeswoman for the scheme said: "We are confident about the demand. The location is excellent, and this is the biggest site in the area. It's also the only one capable of taking a 1m sq ft building and there aren't those kind of requirements floating around."
However, the spokeswoman wouldn't be drawn on the speculative content of the scheme. "I don't know about speculative development. After all, it's still early days and demolition or remedial works are still going on. The issues of speculative development is open to discussion."
The kind of deals the Hub needs are few and far between - which means they don't easily fit into trends. But the market background isn't very encouraging. Although the rest of the UK is seeing demand for industrial and distribution floorspace outstripping supply, the reverse is true in the West Midlands. The perennial woes of the manufacturing sector have helped the supply of industrial floorspace to soar by 21 per cent over the last 12 months.
Carl Durrant, head of the industrial property team in the Birmingham office of King Sturge, says: "Generally speaking, significant activity generated in the UK big shed market towards the end of last year has continued into the first half of 2004. Developer confidence in speculative development in this sector has returned with the likes of ProLogis, Gazeley and Gladman being particularly active."
But it is a different picture in the West Midlands where total available floorspace has, since the last quarter, increased by 7.3 per cent to 28.4m sq ft. About a fifth of that was in larger units above 100,000 sq ft each.
It's difficult to see the immediate consequences for the latest modest batch of speculative industrial or distribution schemes. Raw demand and supply data rarely translates into instant predictions of success or failure.
For now, Catesby Property's development of 85,002 sq ft at Catesby Park, Kings Norton, Wilson Bowden's development of a further 30,000 sq ft at Nexus Point, ProLogis's 249,991 sq ft development at ProLogis Park, Stoke-on-Trent, and Gladman Developments' 399,986 sq ft project at Lymedale Business Park, Newcastle-under Lyme, don't need to worry.
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