The Subplot | The devolution bonus that could spell billions for regeneration

Welcome to The Subplot, your regular slice of commentary on the business and property market from across the North of England and North Wales.

THIS WEEK

• Devo maxed-out: a new approach to spending money raised by business rates will change regeneration
• Elevator pitch: your weekly rundown of what is going up, and what is heading the other way

Listen to the podcast edition

DEVO MAXED-OUT

Business rates mean billions for regeneration

The most boring subject on Earth is about to become the thing you absolutely have to know about: the thrilling story of business rates retention in the North, and why it’s going to change your world.

This time last year a new devolution deal was unveiled, and it hinges on business rates. If it works in Greater Manchester it will be coming to your city region soon. Talks are already underway with Liverpool, and West and South Yorkshire. And it will be worth billions – literally – to local regeneration efforts.

Lovely money

This week marks a major step forward for the devolution deal announced last March. The Greater Manchester Combined Authority already had the right to retain business rates, and were given another 10 years of retention. But the devo deal also offered something slightly more interesting. The city region is allowed to identify 1,440 acres of investment zone land which will have “a 25-year business rate retention scheme without a reset,” according to an official report (the area also gets £16m a year in grants for 10 years, but that’s tiny and not so interesting). It can identify another 1,440 acres of growth zones to get the same deal, but no grant.

Language matters

A note on the detail here. The words “without a reset” are very important. The reset in question refers to periodic efforts to spread revenue around the country by changing who keeps how much of what. Over time economies change. Some cities do well, earning more, while others do badly, and have less, and the government shaves a bit off here, adds some there, and hopes nobody feels left out. As it happens, one such review has been long overdue, and now won’t come till after the election. But if Greater Manchester is allowed to escape this reset it keeps all the additional wealth it generates from its 3,000 acres of special zones. None of it gets siphoned off to help poorer areas. This is a massive gift.

Borrow and be happy

So this is how it works: the combined authority knows it has 25 years ahead to enjoy this special bonus, meaning it can borrow against the income stream. Not to put too fine a point on it, borrowing against the income stream is the whole point of business rates retention. It allows councils to use tomorrow’s successes to pay for today’s upfront infrastructure costs, and everyone’s a winner.

It’s worked down there

So, stroll with me for a moment, down to Birmingham, where this clever wheeze has been in operation to help fund infrastructure and site-enabling at its 270-acre city centre enterprise zone. Business rates there are retained, raising about £2bn, paying infrastructure costs of about £1bn, and everyone wins. The whole show, loans included, is expected to be even-stevens by 2045/2046. Check out the Paradise scheme in Smithfield and a few others to see how well it’s working.

But – and this is important – the clever plan only works if you use your retained business rates to enable the kind of projects that will be pretty certain to yield juicy business rates. The sites have to be gold-plated winners, otherwise this is all moonshine.

Opportunity knocks

All of this is why a report written by Manchester City Council Leader Cllr Bev Craig for the Greater Manchester Combined Authority’s meeting tomorrow, is so significant. Using the Places for Everyone spatial framework as a menu – and reviewing regularly, to make sure schemes can still deliver – Craig is proposing five clusters of sites adding up to a shade under 3,000 acres. Each of them is, in so far as anyone can be certain, a sure-fire winner.

Five lucky winners

The investment zone sites are the science-academic corridor from the University of Salford to ID Manchester on the former UMIST campus (516 acres), absolutely ideal for life sciences; and the 958-acre Rochdale-Bury Northern Gateway site, already a mayoral development zone, ideal for warehouses and high-value industrial uses. The growth zone sites – missing out on a sliver of upfront funding – are the city centre’s northern and eastern fringes including the Ancoats site tipped for a mega government office (355 acres), Salford Quays/Trafford Wharfside, which includes Media City where Landsec is pushing on with 800,000 sq ft more media space, and Trafford Park (570 acres), which is always buzzing. If you can’t earn a whopping business rates dividend from this lot – arguably the most commercially-viable sites in the UK outside London, where business rates revenue is already 23% up in the latest revaluation – then you’ve got a problem.

Misunderstanding

There will be some who say: ‘Surely these tax incentives should go to the poorer areas, not to sure things like ID Manchester?’ The answer is a flat, ‘no’. This particular scheme can only work in areas that are already on the up. To help the poorer areas you need grants – not clever borrowing based on uncertain future income streams. That’s something a new government needs to look at.

Far and wide

Can all this work outside Greater Manchester? Yes. Liverpool City Region, West Yorkshire and South Yorkshire are already travelling down the same path. Sunderland is heading the same way with its plans for a 1.8m sq ft advanced manufacturing development in the region’s investment zone. Others will surely follow. But when this kind of borrowing against retained business rates was first launched in 2011/2012 the idea was that every local authority should aspire to have a go. A new government might think this is a solid, worked-out example of using the proceeds of growth to pay for itself. So watch this business-rates-enabled space.

ELEVATOR PITCH

Going up or going down? This week’s movers

After years of struggle and knockbacks, it’s a great week for the co-living flat-share concept, but not such a good week for the developers of big empty warehouses. Doors closing.

Shed frenzy

More evidence that the Big Shed market is cooling comes as developers line up the next generation of sites. Data from CoStar suggests the pace of pre-letting has fallen back sharply. By this point in 2023, 72% of floorspace was let before building work was completed, now the figure is down to 54%. Net absorption of warehouse floorspace is at a 12-year low, the firm said, adding that about 20m sq ft of newly built floorspace is sitting empty.

Will this deter developers like Russells, which chalked up consent for another 430,000 sq ft at Heywood, adding to 1.45m sq ft of consented space in the same neighbourhood close to Junction 19 of the M62? Will it hold back Harworth, which celebrated Christmas with consent for 800,000 sq ft at Skelton Grange, south of Leeds? No, it won’t deter them. But investors looking at this data will take a cooler view than they did a few years ago. The dash into shed real estate is turning into a thoughtful stroll.

Co-living, at last

At last, a significant victory for co-living, the twentysomethings’ flat-share concept that has had a rough time with planners and local politicians who fear it boils down to huge, crowded, houses-in-multiple-occupation.

Colin Shenton’s Oppidan Life brand won consent from Sheffield City Council for a 40-storey tower with 428 units at High Street. There was a last-minute wobble – a new condition to insist on minimum three-month tenancies, and communal facilities have to be in place before anyone moves in – but otherwise it flew through the planning committee.

How did Shenton manage to pull this off? There’s an interesting lesson here. First, he had a similar 39-storey consent to play with, so the building itself wasn’t an issue. He just wanted to replace 206 normal apartments with 428 co-living units. It seemed to take councillors a while to grasp this.

Oppidan proposed apartments in clusters of four or five studios around a semi-private, shared living space. Officers said that on the face of it this looks like studios, and there’s lots of them, so it would be unacceptable. But added “However, assessed on its individual merits, the proposed co-living scheme is considered to be sufficiently different to such other schemes due to its make-up and the level of amenity and internal space standards provided.” So they liked the clusters – a note there for other co-living developers.

Sheffield officials didn’t have a problem with the size of the apartments – a bugbear for other councils – noting that the Nationally Described Space Standards are not adopted policy in Sheffield, and in any case do not relate to co-living schemes. The smaller number of genuine studio apartments met the space standard.

But the killer blow in the application’s favour was that it acknowledged co-living was novel, and might not work. The applicants said that “a typical floor within the tower could be converted into a range of standard one-bed and two-bed residential units.” Potential failure was a big issue with councillors who said a 40-storey block of bedsits represented a literally huge risk. They could be assured they weren’t creating a potentially redundant 40-storey social headache.

Oppidan won eight votes for, one against, with two abstentions.