Why a Basildon regeneration scheme is keeping an eye on the world's economies
Over the last twelve months the media has bombarded every household in the UK with endless reports on the state of the UK and world economies. Suddenly we have all become experts on how take advantage of declining equity markets using short positions or the Icelandic banking collapse. We have grown accustomed to seeing the share price of household names tumble or profits turn to losses. Banks have vanished, and now some of the most famous names in the motor and retail industries may also disappear from forecourts and the high street.
None of this has helped boost confidence in regeneration projects. What money that is out there is now harder to find and this has affected the viability of highly geared schemes. The conditions attached to financing have never been tighter and they are likely to remain tight for a while. Not a bad thing in controlling debt risk, but it has put a tight squeeze on regeneration projects, which do not create immediate profit.
Strength in shoppingOddly enough, in amongst all this gloom, four of the largest retail and leisure schemes ever seen in the UK have successfully opened nearly 100% pre-let and one broke footfall records. Westfield London, Bristol’s Cabot Circus, Liverpool One and Leicester Highcross have caught the crest of a wave to a certain extent and they are in areas that are undershopped so they are meeting previously unmet demand. If their impressive initial footfall figures continue then that could suggest consumer confidence is higher in some areas.
Number crunchingThe extensive media attention on the downturn has pointed regeneration practitioners to data to support the planning and delivery projects. For example there are sources of Treasury data to which we might not have paid so much attention in the past and we are now looking at more data from the financial sector because that’s where the credit crunch originated.
In a stable market our focus was on our local area, now we have to assess the national and global picture
The market is changing so rapidly, that we can no longer rely on quarterly reports or periodic retail capacity surveys. How and when we track data has changed dramatically. Whereas in the past in a stable growing market our principle focus was on our local area and a few competitors, now we have to assess the national and global picture. For example, the reverberations of what is happening to the Detroit Big Three carmarkers will filter down to the UK car industry before long and possibly to Basildon, which is home to 4,000 Ford workers.
DialogueIn Basildon we have three major regeneration schemes currently going through the European Union Competitive Dialogue procurement process. In this process, which is intended to increase competition between bidders, the procuring organisation stays in dialogue with bidders before inviting several to tender, rather than negotiating with a few and whittling them down to one. All three projects are on track. No project has or will be abandoned and we have keen partners in waiting. In planning each we thoroughly assessed the market; where the projects stood regionally; and crucially, who would be interested to invest hundreds of millions in our district.
Our procurement processes all started at about the time that the credit crunch hit. As the situation worsened and we saw a potential impact on our projects, we increased our resources on market analysis, and focussed our attention towards the national and international picture. We are in discussion with national and international companies so it helps to know about the markets where they work and how changes in those markets affect their business at a global level.
We have been able to make sensible choices based on a clear understanding of how the global business decisions of our partners will affect the projects, the developer’s response to our decisions and project viability.
The market is changing so rapidly, that we can no longer rely on quarterly reports
The Competitive Dialogue process allows for open dialogue on difficult issues and sensible adjustments to be made on solutions that achieve the objectives set out in the contract notice and associated documents. The downturn has created some challenges, to do with market confidence issues but because the process is through dialogue and not negotiation, which encourages more competition, we have been able to work more effectively with bidders in dealing with these challenges, strengthening relationships and the overall quality [and viability] of the solutions.
Know your strengthsMy advice is not to lose sight of your objectives and tweak your project to deliver them in the most timely and viable manner. Focus on areas where viability can be achieved in a difficult market and look at how those areas bring forward the more difficult to achieve elements. For example in a mixed use scheme, the weakest market might be first time buyer flats and buy-to-let property but family housing is still strong and the second time buyer is still in the market. Be prepared for things to take a bit longer but adjustments to timescales will be worth making because pulling out would be disastrous.
Understanding the economic market within which your project sits should be part of your day job and resource planning. It need not cost a lot; simply regularly review relevant economic and property news, and keep a close eye on those sectors which most affect you. This will give you a good enough understanding of the big picture so you are able to focus your more in-depth [and costly] analysis to where you most need it.
Public procurement provides for different solutions to be brought to the table other than the one which you think works. Listen to what the market is telling you through your bidders. You will be in for a very pleasant surprise and great long-term success.
Ian’s favourite websites for economic data:
Treasury data pages
Bank of England
Ian Butt is development director for the regeneration of Basildon town centre
These views are of the author not necessary those of Basildon District Council or the Basildon Renaissance Partnership