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We all knew it but now the evidence is there – our town centres are changing

We all knew it but now the evidence is there – our town centres are changing

Simon Pemberton 21 Aug 2017
Much of my career to date has been in town centres and retail planning. I have amassed extensive experience in completing retail evidence base studies for local planning authorities and project managing planning applications for major town centre, mixed-use proposals. As such, I have a keen interest in the future of our town centres.
Lichfields was recently commissioned by Harborough District Council to update its retail evidence base. This was an update to a retail study that Lichfields had completed in 2013. This update, alongside the many other retail studies that Lichfields completes year-on-year, provides clear evidence that nationally, the composition of our town centres is changing over time. I have taken this analysis further and considered how our town centres have changed over the past decade, based on data set out in Experian Goad category reports, which cover UK town centres.
A number of key trends emerge from this research:
Convenience (food retail)
There has been a recent increase in the proportion of town centre units occupied by convenience retailers on a national average basis. Between 2005 and 2014, the proportion of convenience units has stayed constant at around 8-9%. However, more recently there has been an increase of 2 percentage points to 11% in 2016. 
This general trend is replicated in the proportion of town centre floorspace occupied by convenience retailers, albeit there has been a greater increase in the proportion of convenience floorspace. In fact, between 2005 and 2016, the proportion of convenience floorspace has almost doubled, increasing by 10 percentage points. It is expected that the proportion of convenience floorspace may fall in the future as foodstore operators continue to consolidate their position and focus their requirements on key strategic locations, albeit this may not be reflected in the proportion of convenience units, as these might increase as the focus on quality fresh food leads to more independent convenience shops returning to many areas. 
Comparison (non-food retail)
On a national average basis, the proportion of town centre units occupied by comparison retailers has reduced. In 2005, the national average proportion of town centre units used by comparison retailers was 47%. This proportion reached a low of 41% in 2012, during the global financial crisis. Whilst there has been a small increase in this proportion as the economy has improved, over the eleven years from 2005 to 2006, the proportion of comparison units has reduced to 43% (a fall of 4%).
This change is significant and is mirrored in the proportion of comparison floorspace, with the proportion falling by 4% over this eleven year period.  Based on current and likely future retail and leisure trends, Lichfields considers that this overall trend is unlikely to be reversed, with department stores and high street retailers generally seeking less floorspace, but maintaining or seeking a presence in larger town and city centres.
 
With this change in mind, Lichfields has looked deeper into changes in the composition of comparison retail units, and there are some that are key. In 2005, ‘clothing & footwear’ accounted for 27% of all comparison goods retail units nationally. By 2016, this figure had fallen to 25%. The traditional sector of ‘booksellers, arts, crafts, stationers’ also fell sharply, by 4% over the same period.
Class A3 (restaurants and cafes) and A5 (hot food / take-away) uses
The converse to the decline in comparison retail businesses is that the proportion of food and drink uses in town centres has increased nationally. The proportion of food and drink units accounted for 14% of town centre units in 2005. In 2016, this proportion had grown by 2 percentage points to 16%. The general trend for an increase in the proportion of food and beverage uses in town centres has been well-documented and is likely to continue. 
Looking into this further, it can also be seen that ‘hairdressers/ beauty parlours’ now account for 26% of all units occupied by service uses in town centres nationally, up from 22% in 2005. Likewise, the proportion of ‘restaurants/ cafes/ takeaways’ has increased over the same period, albeit by a lesser amount.
Composition summary
Why the changes?
This confirms what everyone perceives - that town centres have fewer clothing and book retailers and more leisure and service- orientated uses such as restaurants and health and beauty parlours. There are many reasons for this trend in the UK, such as:
  • People choosing to spend more on eating out and other ‘experiences’ rather than on traditional goods;
  • The continuing increase in online shopping which affects clothing and book retailers in particular. According to Experian, in 2016 the proportion of sales in special forms of trading (i.e. non-store retail activity such as mail order sales, some internet sales and so on) as a proportion of comparison sales was 13% and this is projected to rise to 17% by 2035;
  • Although there has been a recent resurgence in book sales, overall, the popularity of electronic books (or ebooks) has led to less demand for town centre floorspace for booksellers, whilst many booksellers with a physical presence in town centres have sub-let part of their floorspace to cafes and coffee shops, further reducing the amount of town centre floorspace occupied by booksellers.
  • The concentration of national multiple clothing & footwear retailers in larger town centres, rather than seeking a presence in all town centres. The general trend is for clothing & footwear retailers to occupy larger units, however, the amount of floorspace occupied by clothing & footwear retailers overall in town centres is down;
  • The pre-recession rise in disposable income and the ongoing popularity of eating out; and
  • Vacant floorspace being filled by lower value uses such as takeaways, charity shops and pay day loan shops.
Why Choose Lichfields?
Lichfields is at the forefront of advising on town centre and retail development. We are town centre and retail experts and act for numerous clients with an interest in retail, leisure and town centre development, including developers, investors, operators and councils. We understand the changing town centre environment and the increase in popularity of leisure uses within town centres. Lichfields has a track record in assisting in the delivery of town centre re-developments and regeneration. We are keen to assist both new and existing clients further. To discuss any town centre planning-related requirements, please contact us.

Image credit: Joe Okpako

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Safely landed? The Mayor’s Affordable Housing and Viability SPG

Safely landed? The Mayor’s Affordable Housing and Viability SPG

Jennie Baker 18 Aug 2017
The Mayor of London, Sadiq Khan, published his Affordable Housing and Viability Supplementary Planning Guidance (SPG) this week. Since coming to office last year, the Mayor has set about expediting key planning documents for London in an attempt to bring greater certainty to a chaotic political environment and to deliver on the promises he ran on during the election.
It is unsurprising that housing is a central priority – undersupply and high prices are common themes that every Londoner would recognise. In his election campaign, Sadiq highlighted two obvious but challenging policies:
  1. to increase house building in the capital (he cited the need for 50,000 homes per year); and
  2. to set a target of 50 per cent of homes to be ‘genuinely affordable’.
Both of these goals are ambitious at the best of times, let alone in today’s period of political and economic uncertainty. To try and achieve these goals, the affordable housing and viability SPG sets out a range of measures that, according to the Mayor, will expedite planning for housing and ensure a higher – and more consistent – level of affordable housing provision.
Land is the key initial input into housing development – without it, homes will not be built; without a steady supply of land in the system, housebuilders can’t prove their investment worth to shareholders. The value of land – and therefore how it is bought and sold - is determined by a myriad of factors including: proximity to infrastructure; proximity to jobs; neighbourhood desirability; and the value of the homes that could be built on-site, to name only a few.
This last factor is important – simply put, the sale or rental value of the homes that are built after years of risk and development needs to exceed the costs and provide a return to mitigate said risk. Combine this with the need to build affordable housing – often where public grant for these houses is significantly lower per unit than it has been in the past – and you have a recipe for lengthy discussions about trade-offs of competing interests which slows development and increases risk.
A policy that won’t make headlines but gets to the root of housing development is that of measuring land value - typically, if the residual land value (i.e. the total income from house sales/rent minus construction costs, fees and profit margin, thus leaving the residual value of land value) is equal to or higher than the benchmark land value (below which it is deemed that no reasonable landowner would want to sell), then the scheme could be considered ‘viable’. Therefore, how we value the ‘benchmark land value’ is crucial to determining viability.
The Mayor wants developers to use the ‘Existing Use Value Plus’ (EUV+) approach rather than a ‘Market Value’ (MV) approach in London - essentially, EUV+ looks at the value of land in its current use (industrial, commercial, agricultural etc.), recognises the returns that this use would generate and applies an uplift or ‘sweetener’ to that value, sufficient to encourage the owner to sell. This differs from the MV approach which essentially recognises the value of land based on previous transaction, subject to development plan policies, – i.e. it uses comparable market information to identify that land’s value and emphasises landowner ‘optionality’ i.e. emphasises the need to incentivise the landowner to sell in the first place.
The Mayor believes that under the MV approach, the benchmark land value provided by market information is too high i.e. developers have to pay too much for the land before the landowner is prepared to sell. Indeed, the SPG cites the RICS by stating:
[…] research published by RICS found that the ‘market value’ approach is not being applied correctly and ‘if market value is based on comparable evidence without proper adjustment to reflect policy compliant planning obligations, this introduces a circularity, which encourages developers to overpay for site and try to recover some or all of this overpayment via reductions in planning obligations.

In the SPG Consultation Summary, the Mayor goes on to state:

Reliance on land transactions for sites that are not genuinely comparable or that are based on assumptions of low affordable housing delivery, excess densities or predicted value growth, may lead to inflated site values.
In shifting to the EUV+ model, the Mayor is making two assumptions -  1. the land value that has to be achieved in London under MV to encourage the landowner to sell is too high and is preventing house building; and 2. this high land value is squeezing planning obligations, such as affordable housing, out of consideration. This is a pretty bold intervention from the Mayor.
But the shift to EUV+ won’t be easy and comes with fundamental questions.
First, how is the existing use value of a site determined, that isn’t currently being used? Here, other land valuation methods may end up being the default method, throwing the shift in London up in the air.
Secondly, the uplift (the ‘plus’ in EUV+) needs to be set at a suitable level – what is that suitable level? The Mayor has set out a range of between 10% and 30% to allow flexibility on valuation but does this provide any more certainty than the existing system?
Thirdly, what about the transition period and dealing with sites where a land agreement has already been reached? Deals that have already been made were agreed under a different set of circumstances – is there a grace or transition period?
Fourthly, how far will landowners be incentivised to sell their land under the new system? They may consider that the uplift under EUV+ is insufficient, and be prepared to hold out in the hope that the policy shifts back in the future and/or a new Mayor is elected and reneges on the guidance. This scenario of ‘who will blink first’ also has repercussions – if landowners do not come forward with land, developers will find it increasingly difficult to secure sites. The impact would be felt on the development industry and could undermine housing delivery.
These concerns are probably why the Mayor has built in some wriggle room - as highlighted above, the 10-30% range of uplift values that could be achieved in EUV+ may help the approach in the guidance to bed-in and help development professionals shift their focus. The Mayor has also indicated that an ‘alternative use value’ (AUV) approach may be used but it a) must reflect policy requirements and b) will only be accepted where there is an existing implementable permission for that use. Where these criteria aren’t met, there will be a greater requirement for development viability proposals to explain why these preferred approaches wouldn’t work on the specific scheme (Paragraphs 3.49-3.52).
Ultimately, the Mayor is trying to ensure that more land is brought forward, more quickly and cheaply – helping developers to build homes (and more affordable homes) quicker - and to squeeze value from the landowner rather than trade-off against planning obligations. However, handling the transition is important. If the guidance’s new approach is too hard and fast, landowners may sit on their land, thus quashing any dreams the Mayor had about delivering on his electoral promises. And yes, councils can intervene and use compulsory purchase to bring forward sites but not everywhere. The key questions are therefore: 1) is the SPG sufficiently robust to achieve the Mayor’s goal of decreasing land value? 2) are the sweeteners large enough to encourage land to come forward and to allay fears housebuilding will dry up? 3) Is the SPG just the beginning of the Mayor seeking to use planning to change land policy, and will the draft Housing Strategy due in September, and the draft London Plan later this year take this approach even further?
Land policy is tricky.

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Mayor of London Homes for Londoners Affordable Housing and Viability Supplementary Planning Guidance 2017

Mayor of London Homes for Londoners Affordable Housing and Viability Supplementary Planning Guidance 2017

Jennie Baker 16 Aug 2017
‘Homes for Londoners Affordable Housing and Viability Supplementary Planning Guidance (SPG) 2017’ has now been published by the Mayor of London (on 16 August).
 
An initial analysis of the finalised SPG provides clear indications of how responses to last year’s draft version have (in large part beneficially) influenced revisions –particularly in terms of increased clarity and elements of moderation throughout the guidance. The threshold approach to viability and its two routes for applicants are explained in simpler terms, as a key example. In terms of detail, there is now scope for more flexibility in applying the guidance on viability assessments. There are also entirely new paragraphs which would appear to have been added in response to the development sector’s concerns over apparent omissions – they cover for example: the consistency of the SPG with national policy and guidance, and with the London Plan; how applications referable to the Mayor will be treated in relation to affordable housing delivery; and how scheme amendments should be dealt with. Increased affordable housing provision on public land is given greater prominence than in the draft SPG too.
 
The Mayor’s guidance on bidding for grant funding from the £2.171bn Homes for Londoners Affordable Homes Programme 2016-21 remains relevant, in setting out how housing providers and developers should be considering bidding further for grant funding from the Programme (the first round of funding was announced last month).
 
Turning first to the SPG, consultation on the draft closed on 28 February. It is important to underline that as the SPG has now been finalised, it has superseded section 3.3. (Build to Rent) and Part 5 (Viability) of the March 2016 Housing SPG; the rest of the Housing SPG remains current.
 
The new SPG provides guidance – with more clarity and detail than the draft version - on a wide array of affordable housing-related issues, which broadly fall within three main topics:
 
  • A threshold approach to viability (Part 2);
  • Guidance on viability assessments (Part 3); and
  • Build-to-Rent (Part 4).
A threshold approach to viability
The 35% affordable housing (to be measured in habitable rooms) threshold is now ‘official’. The so-called ‘threshold approach’ is meant to incentivise developers to deliver 35% or more affordable housing in their schemes, by not requiring them to submit viability assessments (‘the fast track route’), if that proportion can be delivered without public subsidy and respecting other requirements (such as tenure mix). The SPG underlines that where Boroughs adopt different approaches to delivering a higher average percentage of affordable housing (without public subsidy), their local approach can continue to apply.
 
When a scheme does not meet the 35% threshold (under ‘the fast track route’), viability evidence has to be submitted, and review mechanisms apply to that evidence, to ensure that the ‘maximum public benefit is secured over the period of a development and can encourage the build out of schemes’. These review mechanisms consist of:
 
  • early review, where an agreed level of implementation progress is not made within two years of the permission being granted (or within ‘a timeframe agreed by the LPA and set out within the S106 agreement’)
  • an updated early stage review for stalled schemes
  • a mid-term review for larger developments
and
  • a review near the end of development, once 75% of units have been sold (or at a point agreed with the LPA).
If a surplus profit is identified at late stage review, this should be split 60/40 between the borough and the developer, with 60% of surplus profit used for additional affordable housing.
 
Applicants proposing off-site or cash-in-lieu contributions (for which the Mayor says ‘viability alone is insufficient justification’), developments that involve the demolition of existing affordable housing, or where the applicant claims that the vacant building credit applies, all have to submit viability evidence.
 
The ‘Homes for Londoners: Affordable Homes Programme 2016-21 Funding Guidance’ that was published alongside the draft version of the SPG already specifies the incentivising circumstances in which the Mayor will make funding available to guarantee an increase in the number of affordable homes delivered. For the ‘viability tested route’, grant will apply to all affordable homes if the affordable housing delivered with grant is more than 40%; if the affordable proportion with grant is lower than 40%, the grant will only apply to the additional units ‘over and above the baseline level of affordable housing […] viable on a nil-grant basis’. For ‘fast track route’ schemes (viability evidence NOT required), grant will only be available if this allows the proportion of affordable housing to increase above the nil-grant position to a level of 40% or more.
 
The new SPG positively promotes prospective applicants determining whether grant and other forms of subsidy are available which should be used to increase the level of affordable housing delivered.
 
Further clarity is provided now on the London Living Rent (LLR), on tenure and the definition of BtR – registered providers (RPs) are expected to offer tenants (whose combined income is below £60,000) the right to purchase their LLR home on ‘a shared ownership basis’ (no time period being specified).
 
Finally, the Mayor’s view on the national Planning Practice Guidance’s Vacant Building Credit (VBC) is clear: this will not be appropriate in London ‘in most circumstances’, as developments on brownfield land would come forward anyway. The SPG also underlines that if an applicant argues that a scheme qualifies for VBC, community infrastructure levy relief cannot be claimed through the Regulation 40 vacancy test.
 
Guidance on viability assessments

Given the importance placed on viability assessments as the means for scrutinising schemes that fail to hit the 35% affordable housing threshold, the SPG provides comprehensive guidance on how these assessments should be undertaken. The guidance offers detailed explanations on different appraisal requirements, development values and costs, including:

 
  • How abnormal costs should be considered (these ‘would normally be expected to influence land value’ and therefore ‘it should not be assumed that abnormal costs will be offset at the expense of compliance with the Development Plan’);
  • Build cost inflation, which should not be included (new detail is added on costs such as professional fees etc. that should be taken into account but that should be justified); and
  • Developer’s profit, which is recognised as being ‘scheme specific’ - it needs to be justified by applicants, taking account of the ‘individual characteristics of the scheme’, the potential risks of the development and comparable schemes.
Furthermore, the Mayor maintains and underlines his preference, in terms of viability assessment approaches, for the ‘Existing Use Value Plus’ (EUV+) approach (to be used ‘in most circumstances’), where the benchmark land value is ‘based on the current use value of a site plus an appropriate site premium’. But in a change from the draft version of the SPG – likely to be in direct response to development industry concerns with this limited preference - the finalised guidance goes into considerable detail on how and when using alternative use value or a market value approach could be alternatives.
 
Finally, LPAs are invited to consider a more tailored approach to affordable housing for Opportunity Areas and Housing Zones, and on industrial land (including new reference to locally significant and other industrial sites, as well as Strategic Industrial Locations), taking into account the characteristics of such sites. In such areas/ for these sites, councils can apply a ‘localised affordable housing threshold for the fast track route’ or fixed affordable housing requirements that maximise affordable housing delivery.
 
Build-to-Rent

The last section of the SPG focuses on Build-to-Rent (BtR); the Mayor continues to openly express his support for such development and particularly recognises the ‘distinct economics of the sector’ (and states they should be taken into account in determining planning applications), in comparison with traditional ‘build for sale’.

 
The SPG has therefore defined specific requirements for these schemes. In recognising that one of the major constraints affecting BtR developments is the lack of an appropriate legislative/ planning framework, the Mayor defines a ‘BtR pathway’, the key principles of which are:
 
  • A clearer definition of BtR, this being: schemes of at least 50 units, with homes (all self-contained and let separately) to be held as BtR under a covenant for at least 15 years; operation under unified ownership and management, including on-site management; and longer tenancies being offered (ideally three or more years, with rent certainty);
  • Recognition of a specific affordable housing type associated with BtR, as all homes in BtR schemes should stay under single management and therefore discounted market rent (‘preferably at London Living Rent levels’) is to be preferred;
  • The design of schemes, in terms of space standards, should be in accordance with Policy 3.5 of the current London Plan (with the guidance however recognising the scope for ‘flexibility on some design standards’, including the number of homes per core and the number of single-aspect homes);
  • A specific approach to viability, recognising once again ‘the distinct economics’ of the sector – viability information is required (although ‘as the sector develops’ it may be possible for the Mayor to ‘set out a Fast Track Route specifically for BtR developments’ that follow the pathway ‘through the planning system’). For now, viability evidence is required and there are detailed specifications for BtR viability reviews; and
  • Management standards, as BtR schemes should ‘showcase the best management practice in the rented sector’.
The Mayor’s 2016 guidance on bidding for grant funding from the £2.171bn Affordable Homes Programme 2016-21 remains relevant to the SPG: it provides all the detail for providers and developers considering bidding for grant funding. In terms of timing, the first round of funding bids had to be submitted using the GLA’s new ‘Open Project System’ (OPS) between 31 January and 13 April this year. The assessment of all bids was to take into account: deliverability (including consideration of a provider’s delivery output under previous funding programmes, when a bid was for ‘indicative proposals’ i.e. those just showing the number of homes to start in each financial year); feedback from the London Borough; and Regulator feedback (e.g. on the provider’s business plan).
 
Announcements of allocations were delayed from May to July.
 
With the Programme being for 60,000 starts on-site by 2021, eligibility to bid for grant is limited only to organisations intending to own the completed affordable homes. If properties are to be funded as London Affordable Rent or London Living Rent, the landlord also has to be registered with the Social Housing Regulator. As explained above, BtR developers are expected to provide some units in their developments for sub-market rents. Where set at the level of LLR, providers retaining a legal interest in these homes will be able to bid to secure grant from the GLA, if the landlord of the properties is registered with the Social Housing Regulator (such properties would not have a mandatory right to shared ownership).
 
Funding bids were also (successfully) encouraged from London Boroughs.
 
As regards process, there are three bidding mechanisms: the ‘Approved Provider’ route (available if at least 50% of the provider’s housing starts in London between April 2015 and March 2021 are to be affordable homes); the ‘Developer-led’ route (for all schemes with less than 50% affordable housing, or with an ‘in lieu’ off-site provision that proposes more affordable homes than required under the s106 obligation); and a route for negotiated grant rates (for supported or specialist housing).
 
Schemes using the ‘Developer-led’ bidding route are incentivised to provide more affordable homes. Where the percentage of affordable housing proposed is more than 35% but less than 40%, funding is only available for the homes over and above the 35% level. If however grant would enable the level of affordable housing to be viably increased to 40% or more, it can be applied to every affordable home in the project. And if a development could viably achieve 40% or more affordable housing without GLA grant, providers can use the grant-funding to increase the level of affordable provision to an even higher level.

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Planning a great night out

Planning a great night out

Grant Swan 14 Aug 2017
Amid wider concerns, particularly post-Brexit, that London is losing its edge and even that cultural stagnation is driving people away, City Hall last week published ‘From good night to great night A Vision for London as a 24-hour City’. While the Mayor’s aim to stimulate the night time economy is of course commendable, it’s hard to see how the proposed increase in planning restrictions it refers to will help to realise the Vision.
The Vision notes:
The planning system can help too. The Agent of Change principle, Article 4 directions, planning designations and Asset of Community Value listing can help protect cultural assets.
The problem with such designations is that the planning system only deals with what is allowable, and what is not, in a defined area. It cannot make certain developments happen, or force loss-making businesses to stay open.
Underlying the decline of night time venues is a fall in disposable income amongst the younger generations traditionally most likely to frequent them. Rising rents, hefty mortgages, wages not keeping up with inflation for much of the last decade and increased tuition fees have all impacted on available spending. Accordingly, it is no surprise that the Vision notes a particularly steep decline in the number of night clubs since 2007.
It is clear that set against such weighty economic forces, London cannot regulate its way to a vibrant and varied nightlife. Even without such fundamental challenges it’s difficult to see how a planning-based approach would work in practice. Hipsters often lament a venue having gone ‘mainstream’, though surely the transition from ‘happening’ to ‘happened’ would be well and truly complete when that venue’s cultural significance is soberly assessed by a planning officer and a planning committee votes to grant it some form of special protection via planning rules. For an industry which thrives in liminal places and which is constantly changing, subjecting it to new planning restrictions which are at best updated every five years and more likely every decade seems an entirely inappropriate response.
Despite this, there is a part to play for the planning system in ensuring the enduring appeal of London’s nightlife, but it shouldn’t be asked to conform to its own caricature and obstinately hold back economic change. Instead, it could assist in helping to address some of the economic trends which underlie the declining number of night time venues. Notwithstanding a recent levelling off in rents, the substantial increases experienced since the financial crisis are in large part due to exceptionally constrained housing supply. By evading the need to fully meet its requirement for new housing partly on account of protecting the Green Belt, the GLA (and the London Boroughs) has contributed to this problem. A substantial number of the would-be clientele of many venues have been forced out of the city and rents in excess of 50% of household income for many are squeezing disposable income for those who remain.
As a new London Plan is currently being drawn up (with the mayor’s draft Housing Strategy due in September this year), hopefully the GLA will eschew the zero-sum approach of trying to address the negative consequences of one form of planning constraint with further restrictions and instead embrace the positive role that planning can play in ensuring the capital remains liveable for generations to come.

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