The Thames Gateway: lockdown
By Stuart Watson Friday, 21 November 2008
Progress in the Gateway had been sporadic even before the economy nosedived. So how is Europe's biggest regeneration project coping in these tough times, asks Stuart Watson.
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The Thames Gateway was conceived in an economic boom, but now that the good times are over, questions are beginning to be asked about the viability of Europe's biggest regeneration project.
A soaring housing market has underpinned much of the area's development over the past five years. Private developers have been obliged to pay for infrastructure and to provide social housing as part of section 106 planning gain deals. As long as house prices continued to rise, they could bear the burden and still make a profit.
But over the past year, the market for both residential and commercial property has declined sharply. The credit crunch has paralysed the mortgage market, leading to a sharp fall in demand and lower prices. Developers too have been hit by the increased cost and reduced availability of finance.
The key hope for many projects is that public money can fill the gap that has appeared in their funding assessments. Schemes directly related to the 2012 Olympics can count on huge levels of public investment, but new commitments from the public purse may be scarce as the Government counts the cost of bailing out the banks, something demonstrated all too clearly by the London mayor's decision to can the building of the Thames Gateway Bridge and the extension of the Docklands Light Railway to Dagenham Dock.
Below, Regeneration & Renewal investigates the five biggest projects in the Thames Gateway, as ranked in our 2008 list of the most expensive UK regeneration projects, and examines how the credit crunch is affecting their progress. The schemes are at very different stages in the development process, but all are reliant on the private sector to supply the lion's share of funding and all have suffered from the economic downturn. One scheme that readers will note is missing is the planned 11,000-home Barking Riverside project. That is because its promoters under-reported its potential development cost in last year's survey. Assuming the plans are not revised, we would expect it to feature prominently in next year's Top 100. However, Barking & Dagenham Council has said that the dropping of the Thames Gateway Bridge means that Barking Riverside will only be able to take 1,500 homes.
After six years of raising funding and securing planning permission, infrastructure works were set to begin at Silvertown Quays at the end of this year. Then the credit crunch struck. In August, the bank HBOS, which has committed £120 million of funding to the 500,000 sq metre mixed-use project, expressed concerns that led to postponement of the start of the works. "They took a view that, in the current circumstances, they didn't want to go ahead because they are limiting the outflow of funds at the moment," says David Taylor, executive chairman of Silvertown Quays Ltd, the consortium behind the project.
The former chief of national regeneration agency English Partnerships heads a consortium that includes the London Development Agency (LDA) and Kud International, part of the US arm of Japanese construction and development group Kajima. The consortium was appointed preferred developer for the site in 2002 and won outline planning consent from the London Borough of Newham for the scheme in May 2007.
Taylor still hopes that construction will begin early next year, however. "HBOS are still very committed to the project," he says. But he has also been seeking alternative funding and says that Silvertown Quays Ltd has spoken to potential investors from various countries. Taylor says that there has been strong interest in the project, which he describes as "one of the most strategic in London". However, he adds: "People are considering their commitments very carefully. Some people have gone from very bullish to very bearish."
Recent property market rumours suggest that a company linked to the Abu Dhabi government may be poised to take a significant stake in the scheme. The Abu Dhabi National Exhibitions Company already owns the neighbouring Excel exhibition and conference centre and is believed to be interested in expanding its holdings in the area.
Government-owned Middle Eastern investment vehicles, known as sovereign wealth funds, are among the few cash-rich investors in the property market at present, and an injection of finance from that quarter would be a timely boost to the scheme. But Taylor declines to comment on the subject.
The phasing of Silvertown Quays' ten to 15-year development programme will be adjusted to take account of the tougher market conditions. The original intention was to first build homes for private sale, using proceeds from these to help fund the Biota project, a 15,000 sq metre aquarium dedicated to marine conservation designed by architect Terry Farrell. But in the summer, construction of the first 300 private homes at the site was put back to early 2009 as demand for homes declined.
Taylor says the project is now more likely to begin with affordable housing, for which he hopes funding could be provided by new housing and regeneration quango the Homes and Communities Agency, and with the leisure element of the scheme, for which the market remains relatively strong. This would mean that the construction of the aquarium would be moved back to the middle phases of the project. "The LDA and Newham council understand that has to happen," he says.
The content of the scheme is also likely to be rejigged, with a greater emphasis on leisure. The development includes a number of innovative leisure projects, including a surf centre with a giant nine-metre high heated wave tank and a 100 metre-wide white sand beach. There may also be a larger hotel element than was originally planned, to capitalise on perceived strong demand in the area due to the proximity of Excel and London City Airport.
A riverside setting, good public transport links via the Docklands Light Railway and proximity to Canary Wharf provide the scheme with further advantages. However, in the current economic climate, Silvertown Quays needs to find a backer with deep pockets and plenty of imagination if development is to begin next year.
The colossal Ebbsfleet Valley scheme is expected to take around 25 years to develop. Steve McGuckin, head of the project at developer Land Securities, says the company was counting on going through three economic downturns during that period. However, he confesses that this recession has come upon the developer a little earlier than expected.
"We have slowed down," he admits. "We are not proceeding at the rate we planned on a year ago, but we have to be responsible to our shareholders and we don't want to start on something that would disappoint the local community."
McGuckin says that an 18-month hiatus has been inserted into Land Securities' schedule. During this period, no further contracts for infrastructure work will be awarded and no start will be made on building in the Eastern Quarry, which forms around two-thirds of the site. He argues that there is a chance that the lost time can be made up later, however, as the market improves. In the long term, the developer expects around 350 homes a year to be built and sold at Ebbsfleet Valley.
In the meantime, the first phase of infrastructure work is underway. A spine road is being built to accommodate the Fastrack guided bus link connecting it to the nearby Bluewater shopping centre and the rest of Kent Thameside regeneration area. The construction of an artificial lake has begun and utilities are being put in place. By the time the development is complete, spending on infrastructure will total around £500 million, says McGuckin.
Outline planning permission is in place for the whole scheme and the first two of four detailed "quarter masterplans" have also been approved. McGuckin says that, over the next year or so, Land Securities will work to ensure that plans are in place to fully integrate the site with surrounding communities and ensure the development is socially, economically and environmentally sustainable.
The first housing development is the 600-unit Springhead Park, near to Ebbsfleet International rail station. Countryside Properties is building an initial phase of 191 homes, 32 of which are classified as affordable, with 40 units built and sold so far.
Countryside Properties chairman Alan Cherry says the first phase will be finished in the spring or early next summer, but he confesses that the housebuilder is beginning to question whether it will start the next stage of development immediately afterwards. "Our initial release of homes in early 2008 was successful, but the market has got tougher since then," he says. "We have had to increase incentives, including setting up an equity-share scheme, and we have adjusted prices where necessary. The number one priority is cash generation. Every developer in Britain is hesitating about starting their next phases."
Cherry hopes demand for homes in Ebbsfleet Valley will be boosted when domestic services on the Channel Tunnel Rail Link - now rebranded High Speed One - start in November 2009. The service will enable commuters to travel to Stratford in ten minutes and King's Cross in 17 minutes.
The new rail link will be vital to Land Securities' efforts to get the employment element of the scheme under way. The developer has planning permission for 450,000 sq metres of offices around the station alone, but will not go ahead with any construction work until it finds a tenant that will agree to take a substantial portion of this.
McGuckin says that, so far, the tough conditions in the office market have not pushed back the commercial development. He claims that a marketing campaign targeting office occupiers was always planned for 2009 in the run-up to the start of the high-speed rail service.
"People aren't yet aware of how well-connected the area will be," he argues. "It's a good back-office location, with excellent links to the City, Canary Wharf and King's Cross. We are pioneering a new business location, but even in the short term we might do something that surprises the market."
Paul Williams, acting chief executive of the Kent Thameside Regeneration Partnership, which coordinates development in the area, says he is comfortable with progress so far: "The infrastructure pieces are now coming together and, in some ways, Kent Thameside is well placed because a lot of developments are at an early stage, so we don't have housing schemes being abandoned."
McGuckin says Land Securities will not allow the weak market to force it into compromising quality when choosing future residential partners and that it will continue to select developers that share its long-term aspirations for the site. Education and health provision will be stepped up when there are enough residents to support the facilities, he says. "The fact that we are slowing down now is a short-term move against a long-term strategy," he adds. "We are having to react to a downturn a bit earlier than we thought, but we are not panicking."
Chatham Maritime is experiencing the third economic slump since its inception. The scheme predates the concept of the Thames Gateway by 15 years, and next year will mark a quarter of a century since it began.
Where Chatham Maritime is concerned, its lead developer, the South-East of England Development Agency (Seeda) is accustomed to long-term thinking. "We have another ten to 12 years to go, so within that 35 to 40 year period, it's not surprising we have seen a couple of recessions," says Jonathan Sadler, director of development at the regional development agency.
Unlike the other four Gateway projects examined here, Chatham Maritime is a mature scheme, a good deal of which has been completed. Some 1,350 homes - almost half of the total planned for the project - have been built or are under construction. The university campus, commercial space, marina, cinema, factory outlet centre and Dickens World visitor attraction are also occupied and operational.
However, the next phases of the project have suffered as a result of the lethargic housing market. Developer City Lofts, which brought "loft living" to London in the mid-1990s, was selected four years ago to develop the 11ha Interface Site between Chatham Maritime and the Historic Dockyard. Those plans were thwarted when the firm went into administration in the summer.
Sadler says Seeda will not be seeking a replacement developer immediately, but will instead concentrate on reducing the development risks for a future partner. The site presents particular challenges due to proposals to turn Chatham's Historic Dockyard into a world heritage site. Seeda will undertake a masterplanning exercise, the results of which it expects to be adopted as part of planning guidance for the area. "We think that we can cut two years off the development process, so that when the market returns (to health) the site is ready to go," says Sadler.
He says Seeda is reviewing its development programme and looking at ways of boosting housing demand by helping home buyers raise finance. It is also exploring methods of releasing land to private sector partners that reduce the short-term cost and risk of development.
Despite the difficult market conditions, several developments are under construction at Chatham Maritime. Irish developer-contractor BE Estates is building the Chatham Quays scheme, which features 334 flats in two towers of 15 and 21 storeys and 6,000 sq metres of bars and restaurants. The first homes are due to be occupied by Christmas and the development is scheduled for completion in August 2009. Building work began a year ago and Sadler admits that the developer would be unlikely to commit to such a scheme in the current climate.
Countryside Properties is constructing the final 12 homes of its Ventura Riverside development, where 80 houses have been built and sold to date. Countryside has been one of the most prolific developers at Chatham Maritime, building most of the scheme's 1,000 completed homes in a joint venture with Seeda. But Countryside chairman Alan Cherry says that, as in other parts of the South-East, the developer is hesitant about starting on future phases until the houses being constructed are sold.
Other schemes being built include the National Museums at Chatham, which will house collections from the Imperial War and National Maritime museums and is set to open in spring 2010, and a creative industries centre that is due to become operational in December.
There is also a new campus for Mid Kent College - part of the Universities at Medway - which will be able to accommodate 3,000 students by September 2009. Sadler argues that the universities, together with the 3,500 staff employed in various office-based businesses at Chatham Maritime, will help to underpin the scheme's sustainability in difficult economic times. "Because Chatham Maritime is a mixed-use development and we have commercial occupiers in lots of different sectors it is quite diverse as a place, and recently there has been an enormous increase in jobs related to the universities," he says.
Progress at the Thames Gateway's most venerable development has been steady, if rarely spectacular, since its inception. Now a well-established location with a growing sense of place, it is better positioned than many regeneration schemes to weather the stormy economic climate.
US-based developer ProLogis is best known for building huge distribution warehouses next to motorways. At The Bridge in Dartford, the firm is attempting something more complex - a new, mixed-use community - and the economic crisis has made the task even more challenging.
Senior vice president Paul Weston admits the timing of the recession has stalled the progress of commercial development at the scheme. Last May, Dartford Borough Council granted a detailed planning consent for 17,000 sq metres of offices. However, raising capital to construct the scheme has so far proved impossible. "It is a hard time in the office market. We had a funding partner that we went a long way down the line with, but then the credit crunch hit and (they pulled out)," says Weston.
He argues that there is plenty of time for business to pick up, however. ProLogis's development agreement with the council has another 15 years to run, and the neighbouring Crossways Business Park has almost run out of land for new construction, leaving The Bridge as the only local site for office development, according to Weston. In the meantime, the scheme's Nucleus business incubator centre is beginning to fill up. It is now more than 50 per cent occupied by new firms, which the developer hopes will grow and take further space at the site in the future.
In its specialist area of industrial development, ProLogis has met with more success. A huge 62,000 sq-metre warehouse has been built and let to Sainsbury's to distribute wines and spirits to its supermarkets. The developer has outline planning consent for a further 7,200 sq metre industrial facility and Weston claims there is strong interest in the site from waste-to-energy users.
He is keen to promote The Bridge's green credentials and says that research is being carried out into providing power for the office development using geothermal energy. The site is also planned to host a construction academy teaching sustainable building techniques and the Kent branch of the Thames Gateway Institute for Sustainability, a new initiative from the Gateway's three regional development agencies aimed at encouraging the development of green technologies.
The developer also hopes to bring a hotel to the site. Weston says the Kent Thameside area lacks sufficient hotel bedrooms and that ProLogis could have already signed a deal with a budget operator, but has held out for a more upmarket hotel with conference facilities and a health and fitness centre. ProLogis has held discussions with various parties, but is proceeding cautiously due to the economic situation. "We need to make sure the people we are dealing with are credit-worthy enough to make it happen," says Weston.
Meanwhile, George Wimpey, part of troubled housebuilding giant Taylor Wimpey, is proceeding with The Bridge's residential element. The company is reportedly due to build more than 1,100 of the scheme's 1,500 homes and has so far completed 120 out of the 235 homes in the first phase, with a further 30 under construction. "Sales have been going well, even in the current environment," says Mark Pajak, sales and marketing director at George Wimpey. "We have had one or more sales a week since July. I manage 20 sites and none of the others has been doing as well as that."
Pajak admits that he was concerned when sales to buy-to-let investors dried up, but he says that a shift in strategy to targeting owner-occupiers with young families has paid off. Celebrity designers Geraldine and Wayne Hemingway have helped to plan the housing development and have generated considerable publicity for the scheme.
Nonetheless, sales of homes are much slower than in 2007, and prices have fallen significantly. Pajak predicts that the first phase will be complete in the first quarter of 2009. He adds that construction of the second tranche of 245 homes, 170 of which will be for private sale with the rest affordable, will begin as planned in the second quarter: "About 18 months ago, I would have said that this phase would take two years to complete," he says. "Now I think that it will take three years or a bit more."
Canning Town and Custom House
When the bids come in from prospective development partners to create a new town centre for the Canning Town district, it will be an acid test of the viability of large-scale physical regeneration in the recession. "If there is a place where you were going to invest at the moment, then this is it," argues Wayland Pope, director of development at the London Thames Gateway Development Corporation (LTGDC), which is promoting the scheme in partnership with the London Borough of Newham.
Canning Town and Custom House has been a highly populated yet rundown area for hundreds of years. Originally a warren of dwellings that grew up around the docks, the district was unsympathetically redeveloped in the 1960s and 1970s, producing an isolated community of largely publicly-owned housing plagued by a lack of facilities, poor maintenance and antisocial behaviour.
Despite its riverside location - and in recent years the proximity of Canary Wharf - the area has hitherto been neglected by developers. However, the LTGDC and Newham council hope that a new station on the forthcoming Crossrail line and the nearby Olympic Park development will attract private sector investment to the area.
Pope maintains that the commitment shown by the public sector should be enough to persuade developers that the scheme is sufficiently low-risk for them to get involved. Around 95 per cent of the site is owned by Newham council, which has also incorporated a masterplan for the scheme into planning guidance, thus lowering risks related to land assembly and gaining planning consent.
The LTGDC has committed £44 million and another £18 million will follow if a Community Infrastructure Fund bid is successful. Further cash is expected from the Homes and Communities Agency (HCA) to fund the provision of affordable housing, says Pope.
The three consortiums selected to form Newham's development panel received a brief from the council earlier this month for the first phase of the scheme: around 2,000 homes plus retail and commercial development that will form a new centre for Canning Town. The local authority hopes to select a partner by next spring. By that time, Pope believes that government funding for the downgrading of the A13 roundabout in Canning Town - works that are essential to the scheme's viability - should be confirmed.
The panel has changed substantially over the past year, with two of the three original panellists dropping out. Australian developer Lend Lease, which has struggled to raise funds for the construction of the Olympics Athletes' Village, decided it had too many commitments in east London, while housebuilder Taylor Wimpey, which has suffered heavy losses as a result of the property crash, also withdrew. Countryside Properties has now been joined on the panel by French construction group Bouygues, and the E-Central consortium, which consists of developers Chelsfield Partners and First Base, East Thames Housing Association and construction group Laing O'Rourke.
"We will wait with bated breath to see what these developers have to say. We are very pleased with where we are, because every developer is looking for an opportunity with the least risk and with public money coming in," says Pope.
The easiest route for a developer to take would be to build a large food store, together with social rented housing funded by the HCA. However, the LTGDC and Newham council are looking for a more comprehensive scheme with a mix of housing types and tenures. If such a proposal fails to materialise, then the public sector partners may have to go back to the drawing board, but Pope remains hopeful. "From a developer's perspective, this is a good place to be," he argues. "If you're going to do something in the next three or four years, then why not do it here?"
The Thames Gateway Forum 2008 takes place in London on 26-27 November. For details, go to www.thamesgatewayforum.com. Come and visit Regeneration & Renewal at the event at stand N12.
SILVERTOWN QUAYS: KEY FACTS
The 24ha site is next to the Excel exhibition centre on the north bank of the River Thames in London's Docklands and includes part of the Royal Victoria Dock. The scheme's estimated end value is £1.5 billion. Private sector funding so far adds up to £60 million. The London Development Agency is contributing land. The planned scheme comprises:
- 5,000 homes.
- 8,925 sq metres of leisure, including the Biota aquarium and Venture Xtreme sports centre.
- 7,600 sq metres of offices and workspace.
- An 8,000 sq metre hotel.
- 8,000 sq metres of community facilities.
- 5,570 sq metres of restaurants and bars.
- 4,320 sq metres of retail.
EBBSFLEET VALLEY: KEY FACTS
At around 400ha, Ebbsfleet Valley is one of the largest regeneration schemes in Europe. It sits between the towns of Dartford and Gravesend in the Kent Thameside area, next to the new Ebbsfleet International railway station. Total investment required for the scheme is £3 billion. Land Securities has invested £100 million in infrastructure to date. Public sector contribution is chiefly through transport improvements, with £74 million of government infrastructure funding agreed. The planned scheme comprises:
- 10,000 new homes.
- 557,000 sq metres of commercial space, providing an estimated 20,000 new jobs.
- 66,500 sq metres of retail.
- 65,000 sq metres of leisure facilities.
- Five primary schools and one secondary school.
- Over 160ha of parks, lakes and open space.
CHATHAM MARITIME: KEY FACTS
The 140ha Chatham Maritime project is located on the former naval dockyards on the banks of the River Medway in Kent. To complete the scheme, £1 billion is required from the private sector, plus a public sector investment of £160 million. The planned scheme comprises:
- 3,000 homes.
- 100,000 sq metres of office space.
- A Universities at Medway campus.
- 80-shop factory outlet centre.
- 350-berth marina.
- Odeon multiplex cinema.
- Community facilities including a primary school, nursery and doctors' surgery.
- Restaurants and bars.
- Dickens World visitor attraction.
THE BRIDGE: KEY FACTS
The scheme aims to develop 107ha of brownfield land next to the QEII Bridge and Crossways Business Park in Dartford, Kent. The total value of the scheme is £500 million. ProLogis has invested around £100 million to date. Seeda and the Department for Communities and Local Government have made various public grants to support education and research facilities. The planned scheme comprises:
- 1,500 homes.
- 70,000 sq metres of offices, including a science park and the Nucleus business innovation centre.
- 70,000 sq metres of industrial and distribution space.
- A learning and community campus, including a nursery and primary school.
- Kent Thameside Institute for Sustainability.
- Construction skills academy.
- Fastrack guided bus link.
CANNING TOWN AND CUSTOM HOUSE: KEY FACTS
The district is bounded by the A13 road to the north, the River Thames to the south, and the River Lea to the west. Around 60ha of the 110ha area is earmarked for redevelopment. The total required investment is around £2 billion. Public funds of £44 million have been committed up to 2011, with £20 million spent so far. A further £18 million is reliant on a successful application for cash from the Community Infrastructure Fund. The planned scheme comprises:
- 10,000 new homes.
- Two redeveloped town centres around Canning Town and Custom House stations, including a total of 90,000 sq metres of commercial and retail space.
- The new Canning Town centre will include 30,000 sq metres of retail space, office development and 7,500 sq metres of leisure and community uses.
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