After the Goldrush

If the clamour to buy tickets for the London 2012 Games is replicated by investors and occupiers moving into east London than the area is set for a new property goldrush. CoStar News catches up with some of the key figures involved to look at what needs to happen next if a great Games for sports fans is to prove a great Games for the regeneration of east London.

 

The problem with writing about the “legacy”, or the regenerative success of the London 2012 Games, is we are in some respects 20 years away from an answer. The host Boroughs have set out a plan of “convergence” as being the main legacy of the Games – a plan for east London to reach average London living standards by 2030.

It is clear the past two weeks provided a wonderful showcase of what is being promoted for one of the UK’s poorest regions. Westfield for instance says it saw a staggering 400,000 people a day visiting its Stratford City shopping centre throughout the two weeks.

But it will be several years before we can see whether “convergence” has occurred or can be definitive about how much of the £10bn public sector bill has been repaid or to work out if the investment in Stratford and Hackney has created truly successful residential and business locations.

John Burton, director of development at Westfield, the Australian developer that ploughed private investment into the shopping centre and transport infrastructure that leads into the Olympic Park as the global downturn raged, is feeling unsurprisingly chipper this morning about his company’s ability to fill up the remaining 1m sq ft of offices and 1200 homes it has consented at the site.

“The Games were fantastic for us. We managed to cement our centre’s reputation and it helped to give so many people a taste of the new Stratford and east London. There were many days that there were 400,000 plus people coming to Stratford City. At the end of the month we will see how that translated into sales and get full figures back but food, sports goods and fashion all seem to have performed very well. The next two weeks there will be a bit of a lull but then I think many will turn out for the Paralympic Games and then we are heading into good old Xmas. The bottom line is people are now convinced of the legacy of the Games and its ability to involve both private and public investment.”

Baroness Ford, the outgoing chair of the London Legacy Development Corporation, says of major significance for Stratford is proof that it is not on the “dark side of the moon”.

“It has been really useful for people to see how welcoming and easy to get to this part of London is – really just a hop, skip and a jump for central London. In terms of convergence it really has given the area a fantastic chance to do just that.”

Gavin Poole, chief executive officer at iCITY, the preferred bidder for the key job creator in the area, the International Press and Broadcast centre, says the group’s recent selection with Delancey to take on the centre in combination with the Olympics has prompted “overwhelming demand” from investors and occupiers interested in the proposition.

“We see convergence as a vital part of our business plan. There has been some negativity today about the regeneration taking decades. I say that is great. What we are creating will benefit local kids of seven and eight now. We want to work with local schools, Olympic sponsors and businesses to provide a real apparatus for young and old people in the area to have access to new sectors of work. If a young person in Hackney for insance is really interested in the film industry it is really hard to break into. But we will be bringing that industry to their doorstep and looking to harness the energy of local people in the area.”

Matthew Black, head of the east London business at CBRE, a long-term adviser at both the London Development Agency and CBRE on the assembly and design of the park, says that key now is to “keep the energy going and the focus”.

Black jokes that it is too early to tell whether occupier and investor enquiries will pick up as everyone has just been “focused on getting tickets”.

But he adds: “The first two weeks have repositioned this part of London and it is vital now we continue to associate the area with success. People have got over from the West End and seen how easy it is to get there and how quick and accessible and we should be able to build from this.”

So what are the major challenges?

Housing

Housing and how it comes forward will be key.

Latest research from CBRE about rental growth is particularly positive for investors. Newham has shown the largest increase in average rents across all London boroughs over the last year, CBRE reported today. Average rents in Newham rose by 39% to nearly 1,700 per month. The borough came ahead of the City of London, which recorded strong growth of nearly 32%, partly reflecting a small number of exclusive new penthouses, which raised the overall average.

But are the ordinary folk of Stratford going to be priced out of the area as it becomes a commuter belt enclave for the wealthy to commute into the West End and Canary Wharf?

Jackie Sadek, chief executive at UKRegeneration, thinks that is relatively likely given a lack of genuine central government interest in creating an area that the rest of east London can benefit from.

“I think that quietly the aspirations may be re-evaluated. For Robin Wales and Newham and the London Legacy Development Corporation it may be that if the end result is a few more wealthy people moving into the area than there previously was that won’t be too bad a result. The problem is I think the Olympics halo has really confused this issue. My family in Scotland for instance is under the impression that the whole of East London has now been regenerated and this is really not the case.”

Sadek expects the Legacy Corporation to seek some early wins on discretionary sites as it looks to unlock more than 6,000 principally family houses where it will look for pioneering schemes. Then it will take stock and revisit the masterplan and look at other solutions where initial aspirations have not been met.

CBRE’s Black says it is crucial that the first phase the Legacy Development Corporation housing is “delivered well and not as if you are on a building site”.

Significantly each of the current housing schemes are hoping to complete schemes that take a pioneering approach to varying degrees.

The first wave off affordable housing at the site will be available at the Athletes Village once retrofitting has been completed.

Triathlon, the group comprising First Base, Southern Housing and East Thames Group, that will manage and sell the 1,379 affordable houses at the Olympic Village post Games is aiming to make a success of this key element by following a central premise that it can build and deliver affordable housing for investors in a more efficient and therefore better value way than pure public sector landowners can.

It aims to use techniques employed by commercial property landlords around design and procurement to make the build more efficient.

An example First Base chief Elliot Lipton uses is that lorries never leave its sites empty and always arrive full, saving on huge logistics wastages seen elsewhere.

The Triathlon partnership is investing £268.7m in the village, via a £110m grant from the Homes and Communities Agency and a £63.5m loan from Barclays and £95.2m from the European Investment Bank.

Lipton is promising to return £1.50 for every £1 in HCA grant. He says the structure of the transaction with HCA is an example of a public sector grant being used by the private sector to enable the affordable housing sector to make the little money there now is go a lot further.

The partners behind the private element of the Olympic Village are also alongside the BPF currently opposing Newham’s plans to include the village within plans for borough-wide licensing schemes for the private rented sector as it would “send a negative message” to the nascent institutional market for private rented development which it is targeting.

Current plans are to rent all of the properties to form part of the first UK private residential investment fund. That alone would be a significant legacy for the area in terms of the wider UK housing market.

Venues

Stadium

Undoubtedly, the major challenge remains finding a vibrant lasting use for the Olympic Stadium. The failure to secure a permanent tenant for the £486m Olympic Stadium so far has raised concerns that the park’s centrepiece will become a white elephant to match those at Athens for instance.

Efforts to combine a premiership football club anchor with a commitment to keeping athletics at its core and in particular a running track have proved particularly difficult to match up. Mayor Boris Johnson has taken the venue into public ownership and it will host the 2015 IAAF World Championships .The Legacy Corporation has also confirmed bids from West Ham United, Intelligent Transport Services in association with Formula One, UCFB College of Football Business and Leyton Orient have been received which are being assessed. West Ham is still the most likely tenant.

Baroness Ford agrees it remains the major issue that needs to be resolved.

“Now that this has been turned into a truly iconic venue by the Games, irrespective of the other issues it is vital that we get the tenants for this over the line. There is no reason why football and athletics cannot work together. A great bunch of uses are lined up and what we really need to ensure is that this iconic venue is not used just for a few weeks in the year.”

Westfield’s Burton says: “The investment we put up has helped to convince others to invest. The village is a known quantity. The velo and aquatics and handball all have owners that need to just put together their plans. The media centre looks like a good strong proposal but they are still working out final terms. The remaining challenge is certainly to get on top of what happens with the stadium. We need quickly to access the park and the orbit so people can continue to see this as a great new part of London.”

International Broadcast and Press Centre

iCITY backed by Delancey was recently picked to take on the key job creator in Hackney post Games. It plans to create a leading centre for technology, design and research with the potential to generate more than 4,000 jobs. The digital hub would harness innovation and creativity in east London.

The iCITY vision also has a community focus including a conference centre and a pedestrian square for broadcasting major sporting events, along with cafes, restaurants and bars.

Importantly, the Legacy Corporation has set iCITY what it describes as “tough but achievable requirements that must be met before any agreement for lease is formally signed”.

iCITY now has several months to submit “credible business plans to show it can deliver the Legacy Corporation’s aspirations for the Press and Broadcast Centre site”.

Gavin Poole at iCITY, says the centre is already 47% prelet including to a well-known film studio. However, there will be a continued feeling that the new Legacy Corporation chiefs and mayor Boris Johnson could, as UKRegeneration’s chief Sadek suggests, decide instead that they would be better off taking down the structure and creating another residential site.

“The original design was scaled back until it is little more than an aircraft hangar, so it could be done,” says Sadek.

Baroness Ford says the Legacy company is “really chuffed” with the tenant picked. “I was always clear that this was the most difficult venue post the Games in terms of the location and its scale and it is great that we have an occupier that is going to do what everybody always wanted at the location.”

iCITY’s Poole says the consortium is pressing on full steam ahead now with design work for the press and broadcast centre.

“We expect to complete the lease agreement with the Legacy Corporation by the beginning of next year. Then we should have the press centre, which offers prime office space, ready at least by the back end of 2013 for occupation although we would hope to get it ready before hand. The broadcast centre will follow about seven to eight months later.

“We plan to work hard with local people to encourage them to see the centre, its business incubator units and its businesses as a place to start their own enterprises or to work.”

Olympic Park

The 500-acre park site will reopen in summer 2013 as the Queen Elizabeth Olympic Park.

Baroness Ford says securing consent immediately prior to the Games for the £3bn project including 7,000 homes, a university, commercial hubs, a children’s playground and sporting facilities is where the Legacy company has “really medalled”.

“Andy Altman [outgoing chief executive] and I were really chuffed at securing the consent.”

Aquatic Centre

Zaha Hadid’s will be operated by Greenwich Leisure Limited – a charitable social enterprise – providing facilities for community and schools as well as elite athletes, replacing the Crystal Palace National Sports Centre.

Basketball Arena

Plans to move temporary structure to Rio for their Games and have ended.

Copper Box

Home to handball and pentathlon events, and goalball in the Paralympics, the 7,000 seat stadium will become a multi-sport arena, fitness club and home to basketball side the London Lions.

What now?

It is clear that those with the regeneration of east London at heart should be heartened by the unparalleled leg-up provided by the greatest show on earth, but the complex question of ensuring that the standard of living in this poverty stricken part of the country improves will require continued government and private sector commitment and a lot of Mo Farrah’s now legendary “graft and hard work”.

Westfield’s Burton is confident: “People perhaps underestimated the government vision in investing in infrastructure to enable development which removed one of the major obstacles. It has opened the doors if people wish to pursue it.”

Baroness Ford says that as important as the physical legacy is likely to be the harder to measure softer legacy or what she terms the “spiritual legacy”.

“The convergence is also about improving education, belief and a whole host of softer legacies. It what Jessica Ennis, Mo Farrah and Nicola Adams achieved proves to people that they can improve their lives no matter where they come from than the Games will have done a fantastic job.”

pnorman@costar.co.uk

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About Paul Norman's Olympics blog

News Editor of CoStar News, a commercial property news service. Regular blogger on the London 2012 Olympics and what it means for property and the the regeneration of East London
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