Local developments and the Government portfolio

It is interesting waking up and not yet knowing officially who our next Government will be but being pretty sure it will be the colour of blue. In all honesty not really bothered, it will be whoever it is and we’ll have to just wait and see. I spent last night at the amazing Variety Property Awards in Harrogate. It was a great night but more over such optimism in the room that I haven’t seen for a while. Whether it’s new developments, the future Government or speculation of the next big deal it puts a smile on your face but got me thinking about local developments but also the wider Government portfolio.

 

I do love a good fact and although this didn’t necessarily shock me just seeing it written down made it look shocking. The Government’s investment property portfolio is currently valued at more than £13bn (larger than British Land, the UK’s largest REIT). Now I say it doesn’t shock me purely because the Government is everywhere, every town but largely in London. Over recent years the portfolio has strongly benefited from growth in rental yields and general capital appreciation. It’s quite interesting that such a large portfolio is sat benefiting the Government one way but could this asset be used a different way? Radically why not place part of the portfolio out to external investors – a very strong covenant would provide a large capital injection and if structured correctly control could be retained.

 

The portfolio spreads further though with £49bn of land, £91bn of residential and £218bn of buildings. There is a further £42bn of assets under construction. Just to make the numbers really sound big there is £278bn of infrastructure assets. So let’s just sell it all and solve all our problems – well not as simple as it only just covers the pension deficit of the NHS (approximately £391bn). But it is amazing to think of Government Asset plc, a new REIT. We’d need to be careful though as we can use these assets to provide some capital inflow but losing control of them means we put the private sector in control.

 

The estate does however come at a cost – a pretty large running cost. So how can this be managed, well with over 5,000 assets, there is some gain by selling small parcels to cover running costs (and also reducing the annual bill). An overall plan to me would be selling equity stakes which provide a steady income stream but retaining control to allow for future flexibility that suits the Government.

 

Moving on from such a large estate to something a little smaller but more local. Firstly there is the 56 acre Kirkstall Forge development by Commercial Estates Group. The current plan is impressive with a new railway station providing easy access for up to 1,000 homes and 300,000 sq. ft. of offices. The development, expected to be valued at £400m will have access roads completed later this year allowing the progress to be made. The idea of a new community is always exciting and be definitely keeping a close eye on this one.

 

Montpellier Estates commenced and now Caddick are taking forward. City One, with its 9.5 acres of office space, residential tower, hotel and even a casino (potentially) it certainly sounds like another impressive Leeds development. My only feeling is that it maybe a few years before we see anything really commence.

 

One which I am keenly following is Holbeck Village area around Globe Road and Water Lane. These 5.9 acres of land is earmarked for mixed use, though I suspect more commercial than residential given the development occurring around Wellington Place. As far as I know no specific developer signed up yet but do let me know if you know different which leads on nicely to the former Yorkshire Post building where the S106 agreement has been signed and 540,000 sq. ft. of offices and 200 flats. For this development though MEPC has the upper hand with strong interest in Wellington Place with impressive lettings at the current buildings.

 

To me there is a lot to be excited about in Leeds but not forgetting Sheffield and the wider Yorkshire region. Whatever the outcome from the polling it isn’t going to dampen this new appetite for development.

 

Feel free to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.

Enjoy the weekend

Lee

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