03How are cities making use of public sector assets to support economic growth?
Evidence from the interviews
Three broad approaches to managing and optimising the value of public sector assets emerged from the research and interviews:
- Leading development
- Shaping development
- Unlocking development
Though not mutually exclusive, the approaches reflect specific market conditions and priorities in each place, with the role of the public sector and need for intervention required for different reasons in different places.
In cities with relatively weak economies and property markets, public assets are being to work to underpin regeneration efforts, with city partners actively leading development to stimulate growth and economic activity in core urban areas. In other cases, partners are using public sector assets as a means of guiding and shaping the type of development that takes place, in order to meet local priorities for housing or employment space, for example. Meanwhile, other places are unlocking difficult sites through more coordinated and strategic city and city-region wide approaches to managing and investing in assets, rather than on a site by site basis.
1. Leading development
In some cities, the market is too weak to deliver physical development and regeneration without public sector intervention and funding. Partners are purchasing and/or using the existing asset base to pump-prime development that will support economic growth.
Case study 1: Swansea – Investing in assets to support a weak private sector market
In Swansea, the city’s asset management and investment strategy is driven by an objective of revitalising and boosting jobs in the city centre. Due to the relatively weak economy and poor market conditions, private sector-led development is not forthcoming in Swansea, so city partners are investing in and acquiring assets as a tool to spur on activity and plug the gap where the market is not providing opportunities for employment space and retail.
The focus on boosting the attractiveness of the city centre and creating more modern, fit for purpose office stock reflects particular concerns about the lack of highly skilled and better paid jobs in the city centre. High skilled jobs make up 37 per cent of jobs in the city centre compared to a city average of 53 per cent – this puts Swansea as the 18th lowest ranking city in the UK for high skilled jobs in the city centre while it ranks 15th highest for its share of low skilled city centre jobs.11 The ambition is also to retain graduate entrepreneurs from Swansea and Trinity St David’s universities who currently move out of the city due to a lack of appropriate office stock to house expanding start-ups, incubated out of the universities.
The council has acquired properties along the Kingsway, a struggling retail area, to create new office space, and is acting as a developer to deliver and updated business stock. The city is exploring agreements with TechHub Swansea, a start-up office space provider, to take on the lease on completion.
Similarly, the city is in talks to lease another building to Swansea University. Both of these schemes align with the strategic goal of bringing more jobs, footfall and economic activity into the city centre. The city has also acquired land to develop a mixed-use leisure and retail scheme, with the aim of providing additional amenities and facilities to revitalise the city centre. To support this goal, the council plans to move from the beachfront Civic Centre offices to the city centre, releasing an attractive beachfront plot of land to the market while bringing additional footfall and activity to the city centre.
Public assets in Swansea are being put to work, and invested in, within the context of a clear ambition to boost the economic performance of the city centre. Partners are delivering this strategy through existing public assets and funding investment through a combination of council finances, Welsh Government and EU funding.
Box 3: Local Asset Backed Vehicles – partnering with the private sector to lever in investment
Local authorities use a range of funding sources (from local authority prudential borrowing to accessing European funds such as the European Development Fund) to facilitate regeneration. Many cities also build partnerships and vehicles to support their ambitions.
Local Asset Backed Vehicles (LABV) are increasingly popular financial tools allowing local authorities to deliver regeneration projects through collaborating with private investors and developers. They are designed to bring together a range of public and private sector partners in order to pool finance, land, planning powers and expertise, ensure an acceptable balance of risk and return for all partners and to plan and deliver projects more strategically. LABVs also allow local authorities to retain a long-term stake in development and by packaging multiple sites, enable a more strategic, rather than site by site, approach to development.
A LABV enables local authorities to unlock land and deliver projects that could not otherwise be developed, due to a lack of either public funding or private sector engagement. For private investors, this is a way to gain access to public land and benefit from local government’s planning and regulatory support. The agreement leads to the creation of a board, which usually grants equal representation to both partners. Revenues and risks are pooled, therefore mitigating investors’ exposure in case of unsatisfactory outcome, and generating an income stream for local authorities otherwise.
Local Asset Backed Vehicles are usually developed for regeneration purposes, but the nature of the projects varies (housing, office spaces, public facilities, etc.). LABVs often operate on a bundle of projects of different expected yield, in order to even out risks and incentivise under-valued land development.
Case study 2: Sunderland – Packaging sites to deliver viable development
In Sunderland, the city is taking a proactive approach to boost the performance of the city centre by investing in and acquiring sites, led by its Opportunity Acquisition Strategy. They have created a public-private partnership, packaging sites into a single property vehicle which will lead on development to support city centre regeneration and renewal, where the private market alone would not have come forward.
A clear aim of the strategy is to create jobs and enhance city centre attractiveness. Only a third of city centre jobs in Sunderland are highly skilled compared to over half nationally11 and this poses a challenge to the longer term success of the economy as city centres are becoming increasingly more important to attract high skilled jobs and growth.13
After the recession, partners in the city started to investigate options for leading regeneration and development themselves. The private sector was not coming forward and sites were becoming available where developers had halted schemes during the downturn. One of the sites, the former Vaux brewery, was acquired by the council with plans to create jobs and enhance city centre attractiveness by developing high quality office space with complimentary residential, retail and leisure uses. This site has been packaged together with housing developments in Chapel Garth and Seaburn seafront sites into a joint Local Asset Backed Vehicle (LABV) called Siglion with the council and Carillion, managed by Igloo Regeneration. In addition, the council has had to agree to take on the head lease on the first building delivered at the Vaux site in order to make development viable.
The value of entering a LABV to Sunderland has been to improve the ability of the portfolio to support employment, resulting in improved rents and rental income back to the council. The LABV model enables partners to focus on acquiring sites and building with low occupancy or a poorer offer and improving their performance.
In Sunderland, the formal partnership between the public and private sector matches the expertise and finance available in the private sector, with the de-risking through planning that the public sector can bring.
2. Shaping development
In other places, the private sector property market (residential or commercial) is stronger. The focus for partners is using the public asset base to influence how and what kind of development takes place in ways that align with their vision for the city.
Case study 3: Bournemouth – Partnering with the private sector to lever in investment and boost development
Bournemouth has a growing market in digital and creative jobs and the council’s property is supporting economic development strategy to target so-called ‘Silicon South’ through its asset management and investment approach. To do so, partners in Bournemouth entered into a public-private partnership with developer Morgan Sindall, creating the Bournemouth Development Company (BDC) with a specific focus on improving public realm and boosting development in the city centre and north of the city. The BDC was created during the economic downturn and partners report the importance of timing. Sites and opportunities packaged together and brought to the market in the earlier years were subsequently ripe for development as the economy and the property have picked up again in the city.
The motivation for creating the company was to have more influence over how sites are used in the city centre. Prior to the BDC being created, the council realised they were good at selling sites but could do more to ensure that disposed sites were subsequently developed and to attract inward investment into the city. The BDC is a local asset backed vehicle (LABV) whereby 16 council-owned sites were entered into a vehicle with Morgan Sindall, in order to leverage finance and develop key sites.
To improve the attractiveness of the city centre – and create the type of environment that will attract new jobs – ground level car parks in the city centre are being replaced with new student accommodation (serving University of the Arts Bournemouth) and developing a mixed-use residential and retail site, with parking space capacity consolidated into new multi-storey car parks. Partners interviewed in Bournemouth believe that beyond delivering on the developments agreed as part of the LABV, the partnership itself has acted as a catalyst, encouraging wider regeneration and private sector activity in the city centre.
Case study 4: Birmingham – Using public assets to shape the fabric of the city and capitalise on growth opportunities
Birmingham’s city centre property market is relatively strong. Demand for office space has surpassed pre-downturn levels and improved rents have spurred on new and previously stalled developments, with 900,000 sq. ft. of new space forecast for 2018.14 The council has a large existing property portfolio, which including parks covers about 26,000 acres and is worth about £2.25 billion (excluding council dwellings).15 This portfolio is enabling the city to take a strategic approach to shaping growth opportunities.
Within this context, partners in Birmingham report that their asset management strategy has less to do with acquiring new sites, and more to do with keeping a presence in order to maintain a guiding role in what is developed and in shaping the nature of the city. The council owns a number of office buildings on the periphery of the city centre and partners are now looking to release some of these for residential development, in order to re-invest and update commercial stock to meet demands of the modern workplace.
In the Jewellery Quarter, for example, the council is retaining a number of sites, part of a strategic decision to help sustain and revitalise the area, whilst ensuring that the distinctive nature of the area is not damaged from development perceived to be inappropriate. Meanwhile, the city has also taken a very proactive approach in aligning its asset management and investment strategy with wider opportunities in the city, and investing in major civic buildings such as the new Birmingham library which partners report has spurred on regeneration of the wider area, specifically the old Paradise Forum shopping centre which will be replaced with a new street scape and grade A office space.
In anticipation of the arrival of HS2 in the city, the city council has also supported development of Birmingham New Street station, in close cooperation with Network Rail. This includes supporting the metro extension and funding the acquisition of the Palisades shopping centre above the station – now Grand Central shopping centre – recently opened with John Lewis as the flagship tenant. Along with the indirect economic benefits induced by the new development, this project will also generate direct income to the city council through business rates.
Birmingham has a large asset base and city-wide approach has enabled partners to shape development in different areas, according to the vision for the city as a whole and not on a site by site basis. But investing in some places has meant prioritising how to spend public money on land and property assets and their related services. Several public buildings such as museums and leisure centres have been put into trust in order to safeguard their future and reduce public expenditure.
Case study 5: Camden, London – Using public sector to deliver more affordable housing
The London Borough of Camden is using publicly owned land and property to shape development in their area, specifically to ensure that more affordable housing is supplied than would be through the private market alone. This is driven by a desire to ensure that the borough remains affordable to people on lower and medium incomes that are increasingly being priced out. Average house prices are nineteen times higher than average earnings in Camden, the fourth highest house price to earnings ratio in London16 – which is the second least affordable city in the UK.17
The Community Investment Programme is a 15 year asset investment plan aimed at building new homes – many of which are for shared-ownership – and schools, funded through the selling of part of those new developments. The council identified outdated assets that were put on sale to generate capital receipts which were then used alongside prudential borrowing to redevelop existing estates and to build new properties.
The timing was important, as partners report that the economic downturn provided a good opportunity to start being more proactive on what was a quieter property market at the time. The budget cuts faced by the borough have also been an additional incentive to find innovative ways to deliver growth and social services more efficiently. Through this building and selling approach, the council managed to build the first new council housing in the borough in 30 years, as well as to redevelop existing estates.
Although the strategy has proven effective so far, partners in Camden are looking to other financial models as the London market becomes more challenging. It is becoming more difficult for the council to act as developer: in addition to increasing construction costs, a shortage of skilled construction labour is increasing the competition from larger and established private developers, who are able to attract skilled labour with a longer pipeline of work.
Fears of being saddled with a significant sales risk are also pushing partners to exploring options including developing housing for private rent. This option would continue to provide affordable housing, as partners feel even shared-ownership is not an accessible option for enough people. Rental income would also provide a source of revenue to fund local services and re-invest locally.
Case study 6: Bath – Using public sector assets to deliver office developments in a constrained commercial market
Bath council is actively encouraging commercial property investments in a city that faces strong development constraints for office buildings, by using public land and buildings in the city centre and riverside Enterprise Zone to develop employment space.
The combination of high demand in the residential and retail property market and a national policy that has struggled to ensure the delivery of new office stock has posed a challenge for partners in Bath. Partners fear that the shortage of new and modern office space threatens to damage the economy of the city in the long-term. Alongside an absence of new office stock being built, the city has experienced a decrease in office stock in recent years, in part due to the relaxation of permitted development rights which have made it easier for existing offices – many of which are old Georgian houses in the city – to be converted into housing.15
The green belt and the heritage status of the city also constrain the supply of housing in the city, pushing up prices and attractiveness to developers of residential development further. Indeed, partners report that most of the applications for property development received by the council concerned private residential development or student housing delivery, but that commercial property projects were rare. The council’s asset management and investment strategy is focused on maintaining the success of retail but increasingly also on the need to provide office space in order to support economic development and job creation.
In the city centre, a council-owned car park is the focus of a project to deliver a mixed-use development, which will include both residential, much needed modern grade A office space and retail. To deliver the scheme, the city is putting together a proposal to use £25 million of European development funding to put in the necessary infrastructure and de-risk private investment. The council also owns a number of sites included within the Bath City Riverside Enterprise Area, through which the it will seek to promote the provision of employment uses.
3. Unlocking development
Finally, localities focus on removing the barriers to particularly difficult individual sites and projects, by working together to formally coordinate asset management and investment within cities (across local authorities and public sector agencies), which creates new opportunities for releasing valuable land in strategic locations within urban areas.
Case study 7: Cambridge and Cambridgeshire – Developing cross-boundary and agency public asset strategies
In Cambridgeshire, partners identified pressures on land use and the need to use public buildings more effectively as a key priority for delivering more housing growth in the high demand southern part of the county, as well as for regeneration in the northern part of the county. Delivering a supply of housing to meet increasing demand is a particular concern in the area – the city of Cambridge is the third most expensive city in the country, with average house prices almost thirteen times the average wage.17
To address this, partners developed one of the earliest pan-local authority asset mapping and management approaches, which includes assets from different public sector agencies. The programme, called Making Assets Count, initially supported by the Government’s Capital Asset Pathfinder project in Cambridgeshire, is run across the county council, five district councils, the fire and police services, voluntary sector and health sector (which now includes five separate organisations since the Primary Care Trust was disbanded). Assets from the different authorities and agencies were put into a public sector property company, which then packaged up sites and took them to the market. In turn, this pan-authority and agency approach has enabled stronger links with the Cambridgeshire Public Sector Asset Management Strategy, which was launched in 2011 and runs for 10 years. At the time of launching it was the first cross-boundary strategy of its kind.
A key element of the programme has been to undertake data collection of all assets owned by the public sector – across all the individual local authorities and public agencies in the county (including Ministry of Defence, Crown Estate, Government Civil Estate, NHS and other public sector agency land) – in order to map the information. Partners report that the mapping was a catalyst for subsequent discussions and workshops and project development, as well as serving as a resource for day to day inquiries about vacancies and joint working opportunities.
The programme was set up with the aim of rationalising the public estate and making it ‘work smarter’ to reduce running costs and size by approximately 20 per cent by 2020.15 Partners report that one of the most significant, if unanticipated, results, alongside opening up more sites for development, has been to significantly improve public service delivery through co-located services that were better delivered in close proximity. This then delivered associated savings in revenue expenditure from improving social outcomes and reducing the demand for public support.
In Cambridgeshire, partners have brought public sector bodies and local authorities together in order to map public assets, which then enabled them to develop a more integrated approach to identifying opportunities and packaging up sites for housing growth and regeneration across a wide area, rather than on a site by site basis.
Case study 8: Bristol – Formal collaboration with other public sector partners
In Bristol, partners across the city formed the Bristol Property Board (BPB), which by bringing together different local public sector land and property owners (such as blue light services, the HCA and the NHS) has enabled partners to work together to bring to the market previously unviable and difficult sites.
Set up in 2013, via the Bristol City Deal and supported by funding through the One Public Estate programme, the board provides strategic guidance on asset management and investment. It is chaired by the Mayor and composed of six persons, representing government bodies and businesses. Along with the board, a wider stakeholder group – including ambulance, police, and fire and health asset representatives – provides additional support to deliver a shared asset strategy.
There have been some important successes to date, that partners are keen to stress could not have happened without the enabling role that the BPB played. On the edge of the city centre, a site previously owned by the British Rail Residuary Board and then taken over by the HCA had lain derelict for twenty years because there was no access to the site. Through the BPB, partners identified council-owned Highways land adjacent to the site and were able to de-risk it by providing planning certainty on access to the site, which is being developed to deliver 300 homes and a new Bus Rapid Transit station. Elsewhere in the city centre, the BPB enabled partners from the ambulance service, council and HCA to parcel together a previously unviable site, which included a council-owned car park with the (no longer fit for purpose) ambulance station. They identified new locations for the ambulance service and brought the combined sites to the market to build more homes.
The Board has also been a catalyst for building up more trust among partners and partners stated that as relationships and trust continue to be built over time, the impact of formal collaboration and cooperation on strategic asset management will be seen even more widely. The ultimate goal of the board is to be able to take strategic decisions on assets that benefit the city.
The benefits of the BPB have been to de-risk small and particularly difficult developments by developing cross-public sector portfolios, as well as provide planning certainty, to an otherwise strong private property market.
Box 4: The Land Commission model
Reflecting the importance of taking a strategic and cross-border as well as cross-public sector approach to optimising the public estate, many cities are creating Land Commissions. By formally bringing together public sector owners to develop combined registers of public assets across multiple local authorities and public organisations, the Land Commission model enables a strategic approach to managing public sector assets across a city and city-region rather than acting on a site by site basis.
Greater Manchester’s Land Commission was introduced as part of the 2014 devolution agreement with Government and brings together all ten local authorities that make up the Greater Manchester Combined Authority. The first task of the Commission has been to develop a comprehensive Greater Manchester-wide and cross-public sector property register which will enable partners across the city region to identify opportunities for growth within the existing map of public sector land and property assets – as the council and other public sector property owners did in Bristol, for example. An additional incentive for partners in Greater Manchester is the devolution of control over NHS budgets to the city-region. This provides an opportunity to optimise how they use the current social care and health estate across the entire city region, as they will stand to gain from financial efficiencies as well as the results of better public service delivery.
The London Land Commission was announced in February 2015 as part of the Mayor’s Long Term Economic Plan for the capital. The focus in London is also on collecting data, specifically in order to identify land for housing, as well as schools and infrastructure.
Meanwhile, there is an appetite from many other places to have their own Land Commissions, with Leeds City Region and Hampshire specifically referencing the importance of local assets belonging to agencies such as Network Rail, NHS, Highways England, the MoD and other public assets currently not controlled by the HCA to be included within a Commission-type arrangement.21
The next section looks at the common challenges that places face in putting public assets into more productive use.