Merseyside weathering credit crunch storm, say experts

May 7 2008 by Tony McDonough, Liverpool Daily Post

MERSEYSIDE and other parts of the North West have benefited over the last decade from an unprecedented regeneration boom.

Grosvenor’s £1bn Liverpool One scheme heads an impressive list of projects that also includes Queen Square, Princes Dock, St Paul’s Square, Beetham’s two towers and commercial schemes, Kings Dock, and large swathes of Speke Garston.

The value of new investments into the region over recent years can be calculated in the billions, but the shadow of the credit crunch hangs over the viability of future projects.

A year ago, money was cheap and plentiful. Low interest rates, combined with a very liberal attitude to lending by the major banks, meant getting backing for major projects was not a problem.

How quickly things have changed. The US sub-prime crisis – caused by high risk and loosely-regulated US mortgages being diced, sliced, packaged and sold on the global financial markets – has led to huge black holes in the accounts of most major banks.

This has, in turn, led to a general mistrust among banks and a reluctance to lend to each other. Consequent-ly, the whole attitude to lending has now changed. People are having difficulty obtaining mortgag-es and businesses, in particular those in the property sector, are not getting such a warm welcome in the bank manager’s office these days.

The region has started to see casu-alties. Earlier this year, it was revealed plans for a major regener-ation scheme in Chester city centre had been put on hold for at least 12 months as a direct result of the credit crunch.

The £400m Northgate project comprises a 150,000 sq ft department store to be occupied by the House of Fraser, 60 other shops, a performing arts centre, new library, market, restaurants and a new bus station.

Its success is being seen as key to Chester’s economic development and work was due to start in Novem-ber last year. However, work has yet to begin and the developer – ING Real Estate – said in March that the economic conditions meant a deal with its backers won’t be signed until the end of this year at the earliest.

In a statement, ING said: “It was hoped by the city council and ING that the Northgate scheme would get the go-ahead in November, 2007. This proved impossible for a number of reasons, including uncertainty in the credit markets, commercial and construction price inflation and the impact on property values generally.

“In the circumstances, ING had no choice but to review the programme for the scheme, having particular regard to its financial viability.

“ING has now proposed November, 2008, as the date for the final exchange of legal documents with a start on December, 2008/ January, 2009. There are many factors outside the city council’s control that could influence the timescale. Effectively, this means a 12-month delay to the scheme.”

Nor is it just Chester that is suffering. The credit crunch is being felt by regeneration schemes in Merseyside, too. Atlantic Park, near Bootle, has been identified as an important future economic driver for south Sefton.

The 22-acre site is owned by Royal London Asset Management and plans have been put forward that would see 800,000 sq ft of mixed-use accommodation created.

The construction of the first phase – a 45,000 sq ft office building – is due to complete later this year. How-ever, in the last few weeks, the wider plans have run into difficulties. Rolls-Royce announced the closure of its 280,000 sq ft gas turbine plant on the site.

Shortly afterwards, Royal London announced that in the financial climate it was not prepared to start work on any new speculative office space until phase one was fully let.

It added: “We recognise there is some nervousness in the market with regards to speculative development.”

Stuart Keppie, of Liverpool com-mercial property agency Keppie Massie, has specialised in local re-generation projects for many years.

He acknowledges that Merseyside will have to take a hit from the credit crunch as everywhere else, but is optimistic its economic recovery will continue, albeit a little more slowly. He sees an issue with not just the credit crunch but also the withdrawal of grant support for major projects and the abolition of rate relief on empty commercial premises.

“We always have an anxiety about talking things down but I think it is inevitable there will be a slow-down,” he said. “However, I don’t necessarily think Liverpool will be affected as badly as other places.

“In terms of rentals we have come from a very low base, and I think Liverpool One will provide a huge fillip for the local market.”

MR KEPPIE admitted rental demand was down, but in-sisted the “serious players” in the property sector did still want to do business. He said he hoped the Bank of England’s statement last week, that the liquidity crisis may be not being as bad as was first thought, would persuade banks to start lending again.

He believes regeneration projects, where a local authority is a partner, stand a better chance of funding than purely speculative commercial projects.

“All the banks will say ‘we are open for business’ but quite how far they are prepared to go in lending is another question,” he added.

In Liverpool, work is due to start on a number of projects. Biggest of these is Central Village, a £180m project centred around the city’s Central Station which will see land over the current Central Station, where the Victorian rail terminus once stood, turned into a new leisure destination – complete with two new residential tower blocks.

Preparatory work has already started on the site and building work on its £70m first phase, includ-ing the 25 and 20-storey towers, will start in autumn.

Developer Merepark insists funding is in place, but has declined to give further details.

London-based Lead Asset Management also claims its £130m mixed-use plan for Liverpool’s waterfront – New World Square – does have the necessary financial backing and, once final planning issues have been sorted out, it will go ahead.

The site is next to the Royal Liver Buildings and will comprise 362 luxury apartments, a five-star hotel, health spa, restaurant and office space.

A spokesman said: “We believe that this is completely different from the usual standard of development and will offer the marketplace five- star accommodation.” Regeneration specialist St Modwen remains bullish about the prospects for its developments in the region. They include Project Jennifer, centred around the Great Homer Street, in north Liverpool, a massive revamp of Skelmersdale town centre and a new industrial park in Croxteth.

The £150m Project Jennifer will see the creation of a 120,000 sq ft superstore, 55,000 sq ft additional retail space, 40,000 sq ft of community facilities, 80,000 sq ft of light industrial accommodation, a new market hall and 450 apartments and houses.

Tesco is in negotiations with St Modwen, with a view to occupying the superstore space.

Project Jennifer is seen as a vital element of long-term plans by Liverpool City Council to regenerate the whole of north Liverpool.

St Modwen’s regional director Michelle Taylor said that, despite the global credit crunch, the company was confident it could fund all its major projects.

She added: “St Modwen has always been very well funded. Our joint ventures with local authorities gives our projects a lot of credibility. We have property assets worth around £500m and we can secure finance on that.

“The timescale of something like Project Jennifer, in which we have already invested £10m, would depend on the market and a typical timescale on something like this could be up to eight years.

“But we are committed to making this scheme happen because, if it didn’t, it would make the regeneration of the rest of north Liverpool much more difficult.”

Work on its multi-million pound Stonebridge Park development, near to the East Lancs Road, a joint ven-ture with Liverpool Land Develop-ment Company (now part of Liver-pool Vision), is already under way.

“We are creating 60,000 sq ft of warehousing space in what we think will be a superb location and that will be ready in six to eight months,” said Ms Taylor.

tonymcdonough