Planning for prosperity

The days of the iconic masterplan aimed solely at raising the spirits and aspirations of an area have long passed. Now, the emphasis is on viability. Whether clients are developing a corner block, creating a new city quarter or doubling the population of a town centre, they have the same set of objectives: optimisation of value, deliverability and sustainability – and each of these goals should be underpinned by reduced risks and supported by attractive funding packages.

Masterplanning types

Planning policy has created three distinct masterplanning types, each with differing income streams and therefore specific challenges and viability criteria:

Retail A prime example of this is The Bullring, Birmingham, where the retail-led masterplan has transformed the centre of the city and acted as a catalyst for further inward investment and job creation. The latest generation of substantial retail-led masterplans includes Bristol, Leicester, Liverpool, Leeds and Peterborough. Within such plans above-grade residential communities and public facilities such as libraries are being encouraged.

Residential This involves the wholesale redevelopment of residential estates, the linking together of existing communities and the delivery of planned growth. Examples of this approach include 4500 homes at Kidbrooke, south London, and the building of 3300 homes at Lawley, in Telford, Shropshire.

Mixed use This can take the form of a complete new community, such as Ebbsfleet in Kent, or large-scale growth, such as at Corby in Northamptonshire where urban regeneration company Catalyst Corby is proposing to double the population of the town to 100,000. These are significant pieces of town planning and urban regeneration.

Each of these three types of masterplan has to take into account location: sales values, rental incomes, investment yields, void periods and proven demand vary widely across the country.

Reality check

The common goal of all masterplans is to create step changes in commercial and amenity values for the community, with one cross-subsidising the other.

To make this happen, one must secure investment and create a development vehicle to sustain and continue it. Sufficient residual sums must be delivered through development to fund public roads, services and buildings, while also creating an “endowment” so that these facilities do not subsequently become a drain on the public purse.

In any public–private masterplanning partnership, the commercial aspirations of the private sector must be balanced with the public accountability and reporting demanded of a council’s elected members. Without this partnership and understanding, masterplanning proposals will fail.

The team must have the correct credentials. Obviously, team members must have vision and technical know-how, but if they are to maximise their opportunities they must also have a broader appreciation of cost and value than is traditionally demanded of them. All must be able to conceptualise schemes from limited information and actively participate in development appraisals.

The fundamentals necessary to deliver best-value viable masterplans include: access to benchmarking information from similar completed developments so as to be able to judge cost and efficiency, a value management approach coupled with risk management techniques and a knowledge of current market trends, together with an understanding of applying capital taxation allowances and grants.

Folly or icon?

As masterplanning becomes more prevalent, certain trends are emerging. One is the inclusion of the landmark, iconic building, such as the Selfridges store designed by architect Future Systems for Birmingham’s Bullring. The trend has raised questions as to whether the iconic building is the saviour of urban regeneration or merely an expensive folly that hinders future investment. There can be no single solution for all sites, but it would seem that complementary community needs (such as education, healthcare and start-up business units) are now greater catalysts for regeneration than the “statement” building.

Sometimes, however, developers are working in less desirable areas of our towns and cities where a brave approach is needed, and perhaps in these situations only an iconic building will bring about a step change. Such locations demand investors and developers that accept that they may make no profit on the initial, high-quality, phase of development. The aim is to make sure that subsequent phases attract a premium sales value. It is not the place for those that cherrypick and maximise returns on every element of the masterplan.

Finding room for car parking will be fundamental to sustaining values and therefore to scheme viability

Some forward-thinking developers speculate to accumulate in other ways, for example, they capitalise on the 20-25% premium on waterside homes by extending or widening existing watercourses, introducing river or canal basins or making the best use of balancing ponds.

Building cost premiums

It is not simply the blend of development types within a masterplan that affects viability; it is also influenced by the relationship of one use to another, their relative proportions to the whole and their association with site coverage and density. Here are some key factors that affect building cost.

Footprints Integrating buildings within an existing town centre urban group can produce buildings with inefficient wall-to-floor ratios. This can lead to building cost premiums of 5-10%.

Density and height Building at height will add cost but also increase density and generate more open space. Urban schemes generate residential densities at a minimum of 40 dwellings a hectare and densities of about 80-100 dwellings a hectare can be accommodated in buildings of up to five storeys. At a height of between five and 10 storeys, building costs generally increase by about 5%. Densities of about 200 dwellings a hectare can be generated by the use of 20-storey towers, but here build costs will have increased by about 10% and net-to-gross efficiencies will have been reduced by 3-4%.

Net-to-gross efficiencies Mixed-use development has been promoted for many years and is now an accepted format. However, whereas traditional, lower density masterplans tend to mix uses on a block-by-block basis, today’s city-centre masterplans mix uses in layers within a single building. The consequences of this can be quite profound as, for example, putting residential development above major retail development can reduce net to gross efficiencies from a typical 82% to 76%. Each 1% loss of efficiency adds about £2/ft2 to the net sales build cost, thereby removing a significant element of profit from any scheme.

Car parking Planning authorities’ attitudes to car parking vary considerably; some authorities wish to limit it as much as possible, whereas others take a more relaxed attitude. All masterplanning teams know that finding room for car parking will be fundamental to sustaining values, and therefore to scheme viability. Costs are given in the table above.

Providing 10 surface car parking spaces at the same cost of one basement space seems to be the way forward, but when taking into account land values and densities, and the desirability and disposal value of secure car parking spaces, then the decision is not so black and white.

Construction budget ‘health check’

The most viable masterplan is one that has been tested, challenged and validated by market testing. The options will have been presented in the form of a matrix and decisions made to narrow them down to one that meets the aims of the development and offers best value (see the checklist).

Planning gain negotiations

The viability of masterplans is coming under greater scrutiny. The community must be able to provide the support facilities necessary for these large-scale developments and planning authorities need to have a structured plan in place to deliver these facilities based upon the financial support of the masterplan developer.

A tiered approach can be adopted to planning gain negotiations, taking into account the type of development and its potential profit steam, as follows:

Level 1 On-site obligations facilities, services and infrastructure requirements.

Type of schemes contributing residential urban extension, retail, commercial leisure employment

The masterplans now being delivered at such locations as Woolwich Arsenal give a glimpse of what can be achieved

Level 2 Off-site obligations facilities, services and infrastructure.

Type of schemes contributing residential urban extension, commercial leisure and possibly retail.

Level 3 Borough-wide planning and regeneration obligations contributions to regeneration initiatives, for example estate renewal or key physical initiatives.

Type of schemes contributing residential urban extension and, possibly, commercial leisure.

Level 4 Sub-regional planning and regeneration obligations wider growth agenda, for example countywide road improvements.

Type of schemes contributing residential urban extension.

When formulating these planning gain negotiation criteria, consideration should be given to the size, scale and demand for a variety of community-needs based projects. Each development will be different but, given a residential development on a greenfield site, potential contributions may range between £15,000 and £20,000 per residential unit, with the allocation of contributions being:

On-site obligations 40%
Off-site obligations 15%
Borough-wide obligations 40%
Sub-regional obligations 5%

This structured but broad-brush approach to pre-empting the Section 106/278 contributions is a new factor in the masterplanning viability process.

Conclusion

Masterplans must remain flexible to changing market conditions and demands, but, in doing so, each reiteration must be validated so that viability is not compromised, the development opportunity missed or, at worst, the community promised something that will not be delivered.

The masterplans now being delivered at such locations as Woolwich Arsenal, in east London, Bristol Harbourside and Port Marine, Portishead, give a glimpse of what can be achieved through a more collective masterplanning process. Few would disagree that this must be the way forward.