Saturday September 22, 2012
S P Setia boss understands the issues at hand
DESPITE the location and proximity to Chelsea and Sloan Square and the 200-acre Battersea Park, and the fact that the planning consent is already there, there are challenges to the Battersea Power Station site, say property consultants.
Savills and BNP Paribas Real Estate in London both say the fundamental challenge is the power station, which cannot be knocked down because it is listed as a heritage site.
Says Savills director Edward Lewis: “Millions of pounds will have to be spend to keep the power station and its four towers standing; this is only part of the upfront costs. It is not as simple as paying £400mil and construction begins on a clean slate.
“The preservation and conservation and the extension of the Northern Line, both of which will cost many millions, will have to be spent before construction work can begin. There are many encumbrances despite the genuine will to redevelop and get everything up and running.”
Savills first advised previous owners of the site in 1986.
Lewis says while there is a shortage of housing in London, both private and affordable, on this side, nothing has happened for a very long time.
Around the power station site, “there are only industrial sites which nobody cares about,” says Lewis.
This is ironic because Chelsea is located on the other side of the Thames, just across Chelsea Bridge or Albert Bridge. It is 3.3km from the power station to the centre of Chelsea on Kings Road.
The main contention for this lack of activity on the southern side of the Thames is lack of public transport, which the consortium will help to fund.
The funding for the conservation and public transport are lumped together as upfront costs, which the consortium has to bear before construction of residential and commercial units can commence.
On a count of one to six, with one being very poor and six being very good, BNP Paribas Real Estate senior director for development and residential Dr Anthony Lee gives it a score of three despite it being so centrally located.
In order to build a high-density development, there is a need for a score of five to six, he says.
Says Lee: “The power station development itself is particularly reliant upon the extension of the Underground rail system from Charing Cross, through Vauxhall, Nine Elms and terminating at the power station.
“Without this extension, the commercial success ... is in doubt,” he says.
He says due to central government spending constraints, the developments within the Vauxhall Nine Elms Battersea area have to fund a significant proportion of the costs.
(Unlike in Malaysia, or the Klang Valley specifically, where the mass rapid transit work is about to begin, in Britain, the cost of funding for the Northern Line Extension (NLE) will come from developers whose projects benefit from the line.)
The Malaysian consortium will be contributing £203mil to the NLE, and further contributions to other infrastructure and services from a total pot of £25mil.
These include interim bus services, community facilities, off-site CCTV, improvement to other public transport, bicycle-for-hire scheme and other parking zone contributions.
Conservation of the power station will require a further investment of between £50mil and £60mil.
He says the single lifeline to the site is the Underground, a fact he acknowledges and is aware of from the beginning.
“The Northern Line extension will add value to the site. It will help to create a brand new community and will make Battersea Power Station site a new destination.
“The £203mil contribution to build the NLE does not need to be handed in upfront. It is paid on a staggered basis as the project progresses,” he says.
He adds that this strategy, where the developer whose project benefits from the line contributes to the funding of the line, is something that Malaysia can learn from.
“The Klang Valley is also building the MRT (MyRapid Transit). We should learn something from this,” he says.
It is believed that the two parties who will be making the most significant contribution to the NLE is the Malaysian consortium and the US government.
The United States will be relocating its embassy to the southern side of the Thames, near the Battersea Power Station site.
“We are not the only one making that contribution. Other developers will also be contributing,” says Liew, adding that the contribution is determined by the land size.
Another challenge to the site is competition from other developments in the Vauxhall Nine Elms Battersea area.
Lee says there will be at least 16,000 residential units in the area, with about 3,000 of them at the power station site. This places a significant burden on the developers in the area.
Some of the developers which currently have projects there include Ballymore, which is building Embassy Gardens; and Berkeley Homes which is known for its riverfront developments, including St George Wharf that is already completed, and which recently launched Riverlight that is being retailed at about £1,000 per sq ft.
“There will be challenges for all the developers involved in releasing new stock into the market in an orderly fashion to maintain sufficiently high sales values,” he says.
“A high proportion of the Battersea Power Station scheme includes offices and retail. This is a new and untested location for Grade A offices and there will be competition from other new office locations, such as Kings Cross and Stratford City. Both these areas already have excellent transport links in place (and will be even better after the NLE to Battersea Power Station is completed) and Stratford City has the cache of the Olympic Park.
“The fundamental problem in developing any scheme here is the large power station itself, which cannot be knocked down because it is listed (as a heritage site). Battersea simply does not work as a conventional scheme because the power station is a drag on upfront costs. It will cost the Malaysians around £10m a year to maintain, on top of £180m to stabilise and repair.”
Lee says while Battersea is popular among young and affluent professionals as a place to live, the area immediately surrounding the power station itself (the Vauxhall Nine Elms Battersea Opportunity Area) is very different from the wider Battersea.
“Firstly, it is characterised largely by industrial buildings, many of which are under-utilised, with very little residential. The second issue is accessibility to the area by public transport is relatively poor in comparison with other areas in London.
“Finally, there is a tension between funding the Underground Extension and ensuring that developments in the area provide enough affordable housing and funding for community infrastructure so that communities are sustainable,” says Lee.
To this, the consortium proposes to deliver over 500 affordable housing units across the site, split between social rented and intermediate tenures.
This reflects the maximum reasonable level of affordable housing that can be offered, considering the availability of public subsidy, the costs associated with the restoration of the power station and other contributions, most notably the significant contribution to the NLE.
On these various upfront costs and the conservation funding, Lee considers this as an investment, not a cost.
“(The power station) will be the heart of the entire project and the Underground extension its lifeline,” he says.