Community Infrastructure Levy (CIL) Preliminary Draft Charging Schedule and Regulation 123 List
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Community Infrastructure Levy (CIL) Preliminary Draft Charging Schedule and Regulation 123 List
Q9. Do you have any further comments on the PDCS?
Representation ID: 21711
Received: 23/09/2014
Respondent: Wm Morrison Supermarkets Plc
Agent: Peacock & Smith Ltd
The draft CIL charge will put undue additional risk on the delivery of any such proposals and will be an unrealistic financial burden on new retail development. This, in turn, poses a significant threat to potential new investment and job creation in the local area at a time of economic recession and low levels of development activity. Our client is concerned that a balance has not been found between infrastructure funding requirements and viability and subsequently the suggested charge will have a significant adverse impact on the overall viability of future retail development in the district.
Peacock and Smith have been instructed by our client, Wm Morrison Supermarkets Plc, to submit an objection to the proposed CIL rate of £100 or £120/sq. m. for Convenience Retail.
In our view, the draft CIL charge will put undue additional risk on the delivery of any such proposals and will be an unrealistic financial burden on new retail development. This, in turn, poses a significant threat to potential new investment and job creation in the local area at a time of economic recession and low levels of development activity. Our client is concerned that a balance has not been found between infrastructure funding requirements and viability and subsequently the suggested charge will have a significant adverse impact on the overall viability of future retail development in the district.
As part of this objection, Morrisons have also instructed Aspinall Verdi to review the CIL evidence base. Aspinall Verdi's comments are attached, which conclude that the PBA viability study lacks detailed information on non-commercial uses making it difficult to provide a considered response. Further work and revisions are needed in order to reflect the observations above. They conclude that the key elements to be reconsidered are:
1. We would recommend that the report is reviewed to be made clearer and more explicit. Assumptions and sources need to be cited and kept up to date;
2. Market evidence needs to be provided to support the assumptions used to develop the CIL rate.
3. The build cost assumptions which are approximately 19% cheaper than the BCIS benchmarks we have identified for supermarkets.
4. The finance rates set out in the report as 7.5% but have been included in the appraisal as 7%. Also it is not clear whether finance has been applied to land acquisition costs.
5. We would suggest an increased level of developers' profit to reflect the risks involved in retail development.
6. There are no commercial appraisals or evidence as to how the CIL rates of £100 psm and £120 psm for convenience stores have been derivedand given the results of the sensitivity analysis it is clear that changes in values/costs could render schemes unviable and therefore we question whether a sufficient buffer has been allowed for in setting the CIL Charge
This representation has been prepared in the context of the consultation that Rother District Council have launched in respect of their Community Infrastructure Levy (CIL) Preliminary Draft Charging Schedule and Regulation 123 List (August 2014). We are instructed by W.M. Morrison Supermarkets
Plc. to make representations on their behalf.
Introduction
Aspinall Verdi Limited, Chartered Surveyors are property regeneration and development consultants with direct experience of advising both public and private sector clients with respect to development viability, S106 and planning gain matters. The firm has a thorough understanding of property markets,
valuation and development economics and delivery.
This representation has been prepared by Parm Dosanjh, BSc (Hons), DipTP, MSc, MRICS, MRTPI. Parm is a Director of AspinallVerdi and has over 15 years' experience in the planning and development consultancy sector. He is head of AspinallVerdi's London office and has advised on projects throughout
England. Parm also attended the Rother District Council's developer's workshop which was held on the 8th November 2013 and we subsequently submitted written comments to Peter Brett Associates (PBA) on the viability assumptions they had presented in respect of commercial developments. We note that a
couple of these comments/suggestions have been adopted; however, there a number which have been excluded; we address these in our response below.
This submission has been prepared with the support of Peacock & Smith town planning consultants to W.M. Morrison Plc.
For the purposes of these representations we have reviewed the following documents, prepared by or Rother District Council;
1. Community Infrastructure Levy - Economic Viability Assessment, Peter Brett Associate, Final Report July 2014
2. Community Infrastructure Levy - Preliminary Draft Charging Schedule and Regulation 123 List, Rother District Council, August 2014
3. Infrastructure Delivery Plan, Rother District Council, June 2014
General Comments
Prior to making specific comments in response to the consultation questions that have been raised we draw attention to the following:
1. Regulations and guidance for Local Authorities preparing their CIL Charging Schedules should be based on appropriate evidence. There is a lack of information/detail (e.g. the actual retail/commercial development appraisals are missing) provided in respect of the retail (and commercial) typologies making it difficult for us to understand how the CIL Charges have been derived, analysis all the assumptions (e.g. development timescales or contingency etc.) and
provide you with detailed comments. We strongly recommend that the development appraisals for the commercial typologies are made available for consultation.
2. The interrelationship of CIL and site specific S106 is critical to the commercial viability of development and regeneration projects such as foodstores. In many cases the foodstore is linked to a wider development scheme or masterplan involving other uses and infrastructure such as roads. Therefore the preparation and inclusion of infrastructure elements to the Regulation 123 List needs to be clearly defined and understood to avoid double counting. Typical 'site specific' S106/S278 costs that will be outwith the Regulation 123 List should be factored into the CIL Viability Modelling. We note that the PBA viability assessment refers to this issue; however, as mentioned in point 1 above we do not know what figures have actual been adopted in their viability models and whether these are sufficient/appropriate.
3. We note that a relatively significant amount of retail development is proposed within the plan and therefore, should the evidence base and viability work undertaken not support the level of CIL being proposed, then this would affect the delivery of the plan.
4. Request to be heard. Should any changes be made to the CIL Charging Schedule in relation to Use Class 'A' across the Authority boundary, then we would reserve the right to make representations and be heard.
Specific Comments
The following specific comments have been made referring to the paragraph numbers in the CIL: Viability Study Report.
Item (Paragraph Number)
Study Context & Viability (Para 2.1.1 to 2.1.4) -
We agree with the residual value approach adopted by PBA in their viability assessment and the references to the relationship with planning obligations and the need for those onsite (non S123 List) costs to be included within the appraisals. However, no information has been provided as what S106 assumptions have been adopted for the retail typologies and therefore we cannot comment as to whether these are appropriate or not.
Land Uses (Para 3.2.2 and Para 5.1.3) - We agree with utilising the available evidence as the basis for focussing the CIL study. We consider it appropriate to review recent patterns of development, and planning policy objectives to provide a broad indication of what may happen in the future. CIL after all is to be focussed on areas expecting development.
However, there appears to be no analyses or information provided of recent patterns of development, or the planning policy objectives relevant to convenience retailing, or changes in the foodstore market. In fact the study only refers to Large and Local Convenience Use (Para 5.1.3) and no floorspace figures are provided, therefore it is difficult to determine whether the proposed unit sizes for the convenience units are appropriate.
With regards to the large superstore typology we would expect this to be a
store of circa 5,000 sq m plus; given no commercial appraisals have been
provided we do not know what floorspace assumptions have been adopted.
Profit on Cost (Para 5.5.5) - We would suggest that the developers profit level for the retail foodstore option is increased to 25% on cost based on:
* Developer's site assembly risk;
* Holding costs and timescales to complete a development and secure returns can be very long;
* The complexity and timescales for developing significant mixed use development;
* Planning costs and risks (some of which could be abortive)
Build Costs (Para 5.1.6) - A build costs allowance of £1,265 psm for Superstores /Supermarkets has been allowed for; the costs have been derived from BCIS median. We have reviewed the latest BCIS build costs and for foodstore developments of between 1,000 and 7,000 sqm a build cost (median and rebased to the Rother area) of £1,524 psm; this equates to a percentage difference of circa 19% - which on a 5,000 sqm foodstore equates to an additional
£1,295,000 on the build cost alone; the other costs e.g. contingency., external and professionals fees which are linked to build costs would also increase; thus impacting on the surplus available for CIL. The same issue applies to the Local Convenience build costs, which is included at a figure of £1,100 psm compared to latest figures of £1,251 psm.
Given the viability study was only completed in July 2014, we would expect
the study to reflect the latest build costs figures.
An allowance of 10% has been included for externals; we would expect
this to be in the region of 15% for a large convenience store given the
significant investment into the provision of car parking and landscaping.
Finance (Para 5.1.10) - A finance rate of 7.5% is has been adopted; however, the appraisal summary for residential typology at Appendix B refers to a figure of 7% - which is the correct figure? Furthermore, reference is made to the fact that
the finance rate is applied to the total development costs; however, it is not clear where this includes land costs. A developer/operator would acquire the site, undertake design planning work and then construct the building. The holding costs of land therefore can themselves be critical.
Sales Costs (Para 5.1.11) - A marketing cost of 3% of GDV has been allowed for in the appraisals; within this figure we are assuming costs for an actual marketing campaign (circa 1%) and also sales agents and legal fees (2%). There doesn't
appear to be any letting agent or legal fees allowed for commercial uses; we would expect agency fees to be included at 10% of the first years rent and legal fees at 5% of the first years rents.
In addition, no allowance has been made for tenant inducements - we would expect a rent free period of at least 12 months to be allowed for within the appraisal.
Stamp Duty (Para 5.1.13) - Reference is made to Stamp Duty rates of between 0% and 4%; however, in reality the land costs associated with large convenience stores is likely to be in excess of £1m and therefore the variable rate of either 5% or more likely 7% (land value above £2m) should be adopted.
Land for Non- Residential Uses (para 5.1.14 to 5.1.17) - We note the use of £430,000 per hectare (£174,000 per acre) up to £800,000 per hectare (£324,000 per acre) for non-residential development as the baseline figures; these figures are based on employment use. However, it is not clear whether these figures have been adjusted for convenience retail uses; where the benchmark land value is more likely to be between £1.0 to £1.5m per acre. However no evidence has been provided to support the land value assumptions nor whether the appropriate adjustments have been made for convenience retail land values.
It is important to note that landowners are likely to "hold out" until they have
explored their potential returns fully, and may not sell the site if the proposed returns are below their expectations. In many cases landowners have not fully discounted the value of their land following the credit crunch and the land market correction is still taking place. This is particularly relevant for sites that have the potential for the delivery of convenience retail schemes. In the case of retail developments, landowners are likely to hold out for the highest value and are unlike to accept a reduction in their land value for CIL and therefore if values in the range referred to in para 5.1.16 have been adopted then these do not reflect market sentiment and need to be changed.
CIL Surplus & Proposed Rate (Tables 5.5,5.6,6.1 and Para 5.2.12) - The Tables shows the potential CIL Surplus for retail convenience developments ranging between £151 psm (Town Centre) to £158 psm for out of centre supermarket; these figures represent the maximum CIL surplus available. In paragraph 5.2.12 a CIL rate of £100 psm for town centre convenience and £120 psm for out of centre convenience is recommended and these are the rates that the local authority has put forward. There is no explanation as to how the figures are arrived at; for example the difference between the surpluses for town centre and out of centre convenience stores is only £8.00 psm; yet the difference in the
proposed CIL rate is £20.00psm; with the higher charged levied on the out of centre typology - no justification has been provided for these figures. Also, it is not clear whether any sensitivity analysis has been undertaken to arrive at these figures and therefore we question whether an 'Appropriate Balance' has been achieved.
CIL Guidance recommends that 'charging authority should directly sample
an appropriate range of types of sites across its area, in order to supplement existing data.' The guidance goes onto say that 'fine-grained sampling is also likely to be necessary where they wish to differentiate between categories or scales of intended use.' There appears to be no evidence provided of any sampling undertaken by the Council to support the proposed rates.
Given our comments on land values, build costs and other elements of the
development appraisals/evidence we consider that the Council has failed to achieve an 'Appropriate Balance' and that the proposed rates are set cannot be justified based on the evidence provided to date.
Appendix B - Assumptions Summary & Appendix C Sample Appraisal - The appraisal assumptions provided at Appendix B and the sample appraisal at Appendix C both relate to residential schemes, there does not appear to be a similar assumptions or appraisals provided for commercial schemes and therefore it is difficult for us to comment on the appropriateness of the proposed CIL Charge when we don't have all the information required to make an informed comment.
Appendix D - Sensitivity Analysis - The results of the sensitivity analysis illustrated in Figure D1 show that a 10% decrease in values would render convenience retail uses unviable; it is not clear as to whether the findings of this sensitivity analysis have been reflected in achieving the appropriate balance. Furthermore, only one variable has been tested and therefore build costs should also be factored into the sensitivity analysis in order to provide a more rounded view.
Summary and Conclusions
We are pleased to have been given this opportunity to comment on the Rother District Council CIL Preliminary Draft Charging Schedule. We would hope to be consulted further once the issues in this representation have been addressed.
The PBA viability study lacks detailed information on non-commercial uses making it difficult to provide a considered response. Further work and revisions are needed in order to reflect the observations above. We note the key elements to be reconsidered below:
1. We would recommend that the report is reviewed to be made clearer and more explicit. Assumptions and sources need to be cited and kept up to date;
2. Market evidence needs to be provided to support the assumptions used to develop the CIL rate.
3. The build cost assumptions which are approximately 19% cheaper than the BCIS benchmarks we have identified for supermarkets.
4. The finance rates set out in the report as 7.5% but have been included in the appraisal as 7%. Also it is not clear whether finance has been applied to land acquisition costs.
5. We would suggest an increased level of developers' profit to reflect the risks involved in retail development.
6. There are no commercial appraisals or evidence as to how the CIL rates of £100 psm and £120 psm for convenience stores have been derived and given the results of the sensitivity analysis it is clear that changes in values/costs could render schemes unviable and therefore we question whether a sufficient buffer has been allowed for in setting the CIL Charge.
Object
Community Infrastructure Levy (CIL) Preliminary Draft Charging Schedule and Regulation 123 List
Q9. Do you have any further comments on the PDCS?
Representation ID: 21712
Received: 23/09/2014
Respondent: Wm Morrison Supermarkets Plc
Agent: Peacock & Smith Ltd
It is concluded that the PBA viability study lacks detailed information on non-commercial uses.
1.We recommend the report is reviewed to be clearer and more explicit. Assumptions/sources need to be cited and kept up-to-date;
2.Market evidence needs to be provided to support assumptions.
3.The build cost assumptions which are 19% cheaper than the BCIS benchmarks for supermarkets.
4.The finance rates are 7.5% (in report) but 7% (in appraisal).
5.An increased level of developers' profit is needed to reflect the risks involved.
6.There are no commercial appraisals/evidence as to how the CIL rates for convenience stores have been derived.
Peacock and Smith have been instructed by our client, Wm Morrison Supermarkets Plc, to submit an objection to the proposed CIL rate of £100 or £120/sq. m. for Convenience Retail.
In our view, the draft CIL charge will put undue additional risk on the delivery of any such proposals and will be an unrealistic financial burden on new retail development. This, in turn, poses a significant threat to potential new investment and job creation in the local area at a time of economic recession and low levels of development activity. Our client is concerned that a balance has not been found between infrastructure funding requirements and viability and subsequently the suggested charge will have a significant adverse impact on the overall viability of future retail development in the district.
As part of this objection, Morrisons have also instructed Aspinall Verdi to review the CIL evidence base. Aspinall Verdi's comments are attached, which conclude that the PBA viability study lacks detailed information on non-commercial uses making it difficult to provide a considered response. Further work and revisions are needed in order to reflect the observations above. They conclude that the key elements to be reconsidered are:
1. We would recommend that the report is reviewed to be made clearer and more explicit. Assumptions and sources need to be cited and kept up to date;
2. Market evidence needs to be provided to support the assumptions used to develop the CIL rate.
3. The build cost assumptions which are approximately 19% cheaper than the BCIS benchmarks we have identified for supermarkets.
4. The finance rates set out in the report as 7.5% but have been included in the appraisal as 7%. Also it is not clear whether finance has been applied to land acquisition costs.
5. We would suggest an increased level of developers' profit to reflect the risks involved in retail development.
6. There are no commercial appraisals or evidence as to how the CIL rates of £100 psm and £120 psm for convenience stores have been derivedand given the results of the sensitivity analysis it is clear that changes in values/costs could render schemes unviable and therefore we question whether a sufficient buffer has been allowed for in setting the CIL Charge
This representation has been prepared in the context of the consultation that Rother District Council have launched in respect of their Community Infrastructure Levy (CIL) Preliminary Draft Charging Schedule and Regulation 123 List (August 2014). We are instructed by W.M. Morrison Supermarkets
Plc. to make representations on their behalf.
Introduction
Aspinall Verdi Limited, Chartered Surveyors are property regeneration and development consultants with direct experience of advising both public and private sector clients with respect to development viability, S106 and planning gain matters. The firm has a thorough understanding of property markets,
valuation and development economics and delivery.
This representation has been prepared by Parm Dosanjh, BSc (Hons), DipTP, MSc, MRICS, MRTPI. Parm is a Director of AspinallVerdi and has over 15 years' experience in the planning and development consultancy sector. He is head of AspinallVerdi's London office and has advised on projects throughout
England. Parm also attended the Rother District Council's developer's workshop which was held on the 8th November 2013 and we subsequently submitted written comments to Peter Brett Associates (PBA) on the viability assumptions they had presented in respect of commercial developments. We note that a
couple of these comments/suggestions have been adopted; however, there a number which have been excluded; we address these in our response below.
This submission has been prepared with the support of Peacock & Smith town planning consultants to W.M. Morrison Plc.
For the purposes of these representations we have reviewed the following documents, prepared by or Rother District Council;
1. Community Infrastructure Levy - Economic Viability Assessment, Peter Brett Associate, Final Report July 2014
2. Community Infrastructure Levy - Preliminary Draft Charging Schedule and Regulation 123 List, Rother District Council, August 2014
3. Infrastructure Delivery Plan, Rother District Council, June 2014
General Comments
Prior to making specific comments in response to the consultation questions that have been raised we draw attention to the following:
1. Regulations and guidance for Local Authorities preparing their CIL Charging Schedules should be based on appropriate evidence. There is a lack of information/detail (e.g. the actual retail/commercial development appraisals are missing) provided in respect of the retail (and commercial) typologies making it difficult for us to understand how the CIL Charges have been derived, analysis all the assumptions (e.g. development timescales or contingency etc.) and
provide you with detailed comments. We strongly recommend that the development appraisals for the commercial typologies are made available for consultation.
2. The interrelationship of CIL and site specific S106 is critical to the commercial viability of development and regeneration projects such as foodstores. In many cases the foodstore is linked to a wider development scheme or masterplan involving other uses and infrastructure such as roads. Therefore the preparation and inclusion of infrastructure elements to the Regulation 123 List needs to be clearly defined and understood to avoid double counting. Typical 'site specific' S106/S278 costs that will be outwith the Regulation 123 List should be factored into the CIL Viability Modelling. We note that the PBA viability assessment refers to this issue; however, as mentioned in point 1 above we do not know what figures have actual been adopted in their viability models and whether these are sufficient/appropriate.
3. We note that a relatively significant amount of retail development is proposed within the plan and therefore, should the evidence base and viability work undertaken not support the level of CIL being proposed, then this would affect the delivery of the plan.
4. Request to be heard. Should any changes be made to the CIL Charging Schedule in relation to Use Class 'A' across the Authority boundary, then we would reserve the right to make representations and be heard.
Specific Comments
The following specific comments have been made referring to the paragraph numbers in the CIL: Viability Study Report.
Item (Paragraph Number)
Study Context & Viability (Para 2.1.1 to 2.1.4) -
We agree with the residual value approach adopted by PBA in their viability assessment and the references to the relationship with planning obligations and the need for those onsite (non S123 List) costs to be included within the appraisals. However, no information has been provided as what S106 assumptions have been adopted for the retail typologies and therefore we cannot comment as to whether these are appropriate or not.
Land Uses (Para 3.2.2 and Para 5.1.3) - We agree with utilising the available evidence as the basis for focussing the CIL study. We consider it appropriate to review recent patterns of development, and planning policy objectives to provide a broad indication of what may happen in the future. CIL after all is to be focussed on areas expecting development.
However, there appears to be no analyses or information provided of recent patterns of development, or the planning policy objectives relevant to convenience retailing, or changes in the foodstore market. In fact the study only refers to Large and Local Convenience Use (Para 5.1.3) and no floorspace figures are provided, therefore it is difficult to determine whether the proposed unit sizes for the convenience units are appropriate.
With regards to the large superstore typology we would expect this to be a
store of circa 5,000 sq m plus; given no commercial appraisals have been
provided we do not know what floorspace assumptions have been adopted.
Profit on Cost (Para 5.5.5) - We would suggest that the developers profit level for the retail foodstore option is increased to 25% on cost based on:
* Developer's site assembly risk;
* Holding costs and timescales to complete a development and secure returns can be very long;
* The complexity and timescales for developing significant mixed use development;
* Planning costs and risks (some of which could be abortive)
Build Costs (Para 5.1.6) - A build costs allowance of £1,265 psm for Superstores /Supermarkets has been allowed for; the costs have been derived from BCIS median. We have reviewed the latest BCIS build costs and for foodstore developments of between 1,000 and 7,000 sqm a build cost (median and rebased to the Rother area) of £1,524 psm; this equates to a percentage difference of circa 19% - which on a 5,000 sqm foodstore equates to an additional
£1,295,000 on the build cost alone; the other costs e.g. contingency., external and professionals fees which are linked to build costs would also increase; thus impacting on the surplus available for CIL. The same issue applies to the Local Convenience build costs, which is included at a figure of £1,100 psm compared to latest figures of £1,251 psm.
Given the viability study was only completed in July 2014, we would expect
the study to reflect the latest build costs figures.
An allowance of 10% has been included for externals; we would expect
this to be in the region of 15% for a large convenience store given the
significant investment into the provision of car parking and landscaping.
Finance (Para 5.1.10) - A finance rate of 7.5% is has been adopted; however, the appraisal summary for residential typology at Appendix B refers to a figure of 7% - which is the correct figure? Furthermore, reference is made to the fact that
the finance rate is applied to the total development costs; however, it is not clear where this includes land costs. A developer/operator would acquire the site, undertake design planning work and then construct the building. The holding costs of land therefore can themselves be critical.
Sales Costs (Para 5.1.11) - A marketing cost of 3% of GDV has been allowed for in the appraisals; within this figure we are assuming costs for an actual marketing campaign (circa 1%) and also sales agents and legal fees (2%). There doesn't
appear to be any letting agent or legal fees allowed for commercial uses; we would expect agency fees to be included at 10% of the first years rent and legal fees at 5% of the first years rents.
In addition, no allowance has been made for tenant inducements - we would expect a rent free period of at least 12 months to be allowed for within the appraisal.
Stamp Duty (Para 5.1.13) - Reference is made to Stamp Duty rates of between 0% and 4%; however, in reality the land costs associated with large convenience stores is likely to be in excess of £1m and therefore the variable rate of either 5% or more likely 7% (land value above £2m) should be adopted.
Land for Non- Residential Uses (para 5.1.14 to 5.1.17) - We note the use of £430,000 per hectare (£174,000 per acre) up to £800,000 per hectare (£324,000 per acre) for non-residential development as the baseline figures; these figures are based on employment use. However, it is not clear whether these figures have been adjusted for convenience retail uses; where the benchmark land value is more likely to be between £1.0 to £1.5m per acre. However no evidence has been provided to support the land value assumptions nor whether the appropriate adjustments have been made for convenience retail land values.
It is important to note that landowners are likely to "hold out" until they have
explored their potential returns fully, and may not sell the site if the proposed returns are below their expectations. In many cases landowners have not fully discounted the value of their land following the credit crunch and the land market correction is still taking place. This is particularly relevant for sites that have the potential for the delivery of convenience retail schemes. In the case of retail developments, landowners are likely to hold out for the highest value and are unlike to accept a reduction in their land value for CIL and therefore if values in the range referred to in para 5.1.16 have been adopted then these do not reflect market sentiment and need to be changed.
CIL Surplus & Proposed Rate (Tables 5.5,5.6,6.1 and Para 5.2.12) - The Tables shows the potential CIL Surplus for retail convenience developments ranging between £151 psm (Town Centre) to £158 psm for out of centre supermarket; these figures represent the maximum CIL surplus available. In paragraph 5.2.12 a CIL rate of £100 psm for town centre convenience and £120 psm for out of centre convenience is recommended and these are the rates that the local authority has put forward. There is no explanation as to how the figures are arrived at; for example the difference between the surpluses for town centre and out of centre convenience stores is only £8.00 psm; yet the difference in the
proposed CIL rate is £20.00psm; with the higher charged levied on the out of centre typology - no justification has been provided for these figures. Also, it is not clear whether any sensitivity analysis has been undertaken to arrive at these figures and therefore we question whether an 'Appropriate Balance' has been achieved.
CIL Guidance recommends that 'charging authority should directly sample
an appropriate range of types of sites across its area, in order to supplement existing data.' The guidance goes onto say that 'fine-grained sampling is also likely to be necessary where they wish to differentiate between categories or scales of intended use.' There appears to be no evidence provided of any sampling undertaken by the Council to support the proposed rates.
Given our comments on land values, build costs and other elements of the
development appraisals/evidence we consider that the Council has failed to achieve an 'Appropriate Balance' and that the proposed rates are set cannot be justified based on the evidence provided to date.
Appendix B - Assumptions Summary & Appendix C Sample Appraisal - The appraisal assumptions provided at Appendix B and the sample appraisal at Appendix C both relate to residential schemes, there does not appear to be a similar assumptions or appraisals provided for commercial schemes and therefore it is difficult for us to comment on the appropriateness of the proposed CIL Charge when we don't have all the information required to make an informed comment.
Appendix D - Sensitivity Analysis - The results of the sensitivity analysis illustrated in Figure D1 show that a 10% decrease in values would render convenience retail uses unviable; it is not clear as to whether the findings of this sensitivity analysis have been reflected in achieving the appropriate balance. Furthermore, only one variable has been tested and therefore build costs should also be factored into the sensitivity analysis in order to provide a more rounded view.
Summary and Conclusions
We are pleased to have been given this opportunity to comment on the Rother District Council CIL Preliminary Draft Charging Schedule. We would hope to be consulted further once the issues in this representation have been addressed.
The PBA viability study lacks detailed information on non-commercial uses making it difficult to provide a considered response. Further work and revisions are needed in order to reflect the observations above. We note the key elements to be reconsidered below:
1. We would recommend that the report is reviewed to be made clearer and more explicit. Assumptions and sources need to be cited and kept up to date;
2. Market evidence needs to be provided to support the assumptions used to develop the CIL rate.
3. The build cost assumptions which are approximately 19% cheaper than the BCIS benchmarks we have identified for supermarkets.
4. The finance rates set out in the report as 7.5% but have been included in the appraisal as 7%. Also it is not clear whether finance has been applied to land acquisition costs.
5. We would suggest an increased level of developers' profit to reflect the risks involved in retail development.
6. There are no commercial appraisals or evidence as to how the CIL rates of £100 psm and £120 psm for convenience stores have been derived and given the results of the sensitivity analysis it is clear that changes in values/costs could render schemes unviable and therefore we question whether a sufficient buffer has been allowed for in setting the CIL Charge.
Object
Community Infrastructure Levy (CIL) Preliminary Draft Charging Schedule and Regulation 123 List
Q5. Do you agree with the proposed CIL rates for non-residential development?
Representation ID: 21713
Received: 23/09/2014
Respondent: Wm Morrison Supermarkets Plc
Agent: Peacock & Smith Ltd
1.There is a lack of information/detail (e.g.actual retail/commercial development appraisals are missing) making it difficult to understand how the Charges have been derived.
2.The interrelationship of CIL/S106 is critical to commercial viability and regeneration projects. The preparation and inclusion of infrastructure elements to the Reg.123 List needs to be clearly defined/understood to avoid double counting.
3.Retail development is proposed within the plan and the evidence base/viability work undertaken should support the level of CIL being proposed.
4.Should any changes be made to the Charging Schedule in relation to Use Class 'A', then we reserve the right to make representations/be heard.
Peacock and Smith have been instructed by our client, Wm Morrison Supermarkets Plc, to submit an objection to the proposed CIL rate of £100 or £120/sq. m. for Convenience Retail.
In our view, the draft CIL charge will put undue additional risk on the delivery of any such proposals and will be an unrealistic financial burden on new retail development. This, in turn, poses a significant threat to potential new investment and job creation in the local area at a time of economic recession and low levels of development activity. Our client is concerned that a balance has not been found between infrastructure funding requirements and viability and subsequently the suggested charge will have a significant adverse impact on the overall viability of future retail development in the district.
As part of this objection, Morrisons have also instructed Aspinall Verdi to review the CIL evidence base. Aspinall Verdi's comments are attached, which conclude that the PBA viability study lacks detailed information on non-commercial uses making it difficult to provide a considered response. Further work and revisions are needed in order to reflect the observations above. They conclude that the key elements to be reconsidered are:
1. We would recommend that the report is reviewed to be made clearer and more explicit. Assumptions and sources need to be cited and kept up to date;
2. Market evidence needs to be provided to support the assumptions used to develop the CIL rate.
3. The build cost assumptions which are approximately 19% cheaper than the BCIS benchmarks we have identified for supermarkets.
4. The finance rates set out in the report as 7.5% but have been included in the appraisal as 7%. Also it is not clear whether finance has been applied to land acquisition costs.
5. We would suggest an increased level of developers' profit to reflect the risks involved in retail development.
6. There are no commercial appraisals or evidence as to how the CIL rates of £100 psm and £120 psm for convenience stores have been derivedand given the results of the sensitivity analysis it is clear that changes in values/costs could render schemes unviable and therefore we question whether a sufficient buffer has been allowed for in setting the CIL Charge
This representation has been prepared in the context of the consultation that Rother District Council have launched in respect of their Community Infrastructure Levy (CIL) Preliminary Draft Charging Schedule and Regulation 123 List (August 2014). We are instructed by W.M. Morrison Supermarkets
Plc. to make representations on their behalf.
Introduction
Aspinall Verdi Limited, Chartered Surveyors are property regeneration and development consultants with direct experience of advising both public and private sector clients with respect to development viability, S106 and planning gain matters. The firm has a thorough understanding of property markets,
valuation and development economics and delivery.
This representation has been prepared by Parm Dosanjh, BSc (Hons), DipTP, MSc, MRICS, MRTPI. Parm is a Director of AspinallVerdi and has over 15 years' experience in the planning and development consultancy sector. He is head of AspinallVerdi's London office and has advised on projects throughout
England. Parm also attended the Rother District Council's developer's workshop which was held on the 8th November 2013 and we subsequently submitted written comments to Peter Brett Associates (PBA) on the viability assumptions they had presented in respect of commercial developments. We note that a
couple of these comments/suggestions have been adopted; however, there a number which have been excluded; we address these in our response below.
This submission has been prepared with the support of Peacock & Smith town planning consultants to W.M. Morrison Plc.
For the purposes of these representations we have reviewed the following documents, prepared by or Rother District Council;
1. Community Infrastructure Levy - Economic Viability Assessment, Peter Brett Associate, Final Report July 2014
2. Community Infrastructure Levy - Preliminary Draft Charging Schedule and Regulation 123 List, Rother District Council, August 2014
3. Infrastructure Delivery Plan, Rother District Council, June 2014
General Comments
Prior to making specific comments in response to the consultation questions that have been raised we draw attention to the following:
1. Regulations and guidance for Local Authorities preparing their CIL Charging Schedules should be based on appropriate evidence. There is a lack of information/detail (e.g. the actual retail/commercial development appraisals are missing) provided in respect of the retail (and commercial) typologies making it difficult for us to understand how the CIL Charges have been derived, analysis all the assumptions (e.g. development timescales or contingency etc.) and
provide you with detailed comments. We strongly recommend that the development appraisals for the commercial typologies are made available for consultation.
2. The interrelationship of CIL and site specific S106 is critical to the commercial viability of development and regeneration projects such as foodstores. In many cases the foodstore is linked to a wider development scheme or masterplan involving other uses and infrastructure such as roads. Therefore the preparation and inclusion of infrastructure elements to the Regulation 123 List needs to be clearly defined and understood to avoid double counting. Typical 'site specific' S106/S278 costs that will be outwith the Regulation 123 List should be factored into the CIL Viability Modelling. We note that the PBA viability assessment refers to this issue; however, as mentioned in point 1 above we do not know what figures have actual been adopted in their viability models and whether these are sufficient/appropriate.
3. We note that a relatively significant amount of retail development is proposed within the plan and therefore, should the evidence base and viability work undertaken not support the level of CIL being proposed, then this would affect the delivery of the plan.
4. Request to be heard. Should any changes be made to the CIL Charging Schedule in relation to Use Class 'A' across the Authority boundary, then we would reserve the right to make representations and be heard.
Specific Comments
The following specific comments have been made referring to the paragraph numbers in the CIL: Viability Study Report.
Item (Paragraph Number)
Study Context & Viability (Para 2.1.1 to 2.1.4) -
We agree with the residual value approach adopted by PBA in their viability assessment and the references to the relationship with planning obligations and the need for those onsite (non S123 List) costs to be included within the appraisals. However, no information has been provided as what S106 assumptions have been adopted for the retail typologies and therefore we cannot comment as to whether these are appropriate or not.
Land Uses (Para 3.2.2 and Para 5.1.3) - We agree with utilising the available evidence as the basis for focussing the CIL study. We consider it appropriate to review recent patterns of development, and planning policy objectives to provide a broad indication of what may happen in the future. CIL after all is to be focussed on areas expecting development.
However, there appears to be no analyses or information provided of recent patterns of development, or the planning policy objectives relevant to convenience retailing, or changes in the foodstore market. In fact the study only refers to Large and Local Convenience Use (Para 5.1.3) and no floorspace figures are provided, therefore it is difficult to determine whether the proposed unit sizes for the convenience units are appropriate.
With regards to the large superstore typology we would expect this to be a
store of circa 5,000 sq m plus; given no commercial appraisals have been
provided we do not know what floorspace assumptions have been adopted.
Profit on Cost (Para 5.5.5) - We would suggest that the developers profit level for the retail foodstore option is increased to 25% on cost based on:
* Developer's site assembly risk;
* Holding costs and timescales to complete a development and secure returns can be very long;
* The complexity and timescales for developing significant mixed use development;
* Planning costs and risks (some of which could be abortive)
Build Costs (Para 5.1.6) - A build costs allowance of £1,265 psm for Superstores /Supermarkets has been allowed for; the costs have been derived from BCIS median. We have reviewed the latest BCIS build costs and for foodstore developments of between 1,000 and 7,000 sqm a build cost (median and rebased to the Rother area) of £1,524 psm; this equates to a percentage difference of circa 19% - which on a 5,000 sqm foodstore equates to an additional
£1,295,000 on the build cost alone; the other costs e.g. contingency., external and professionals fees which are linked to build costs would also increase; thus impacting on the surplus available for CIL. The same issue applies to the Local Convenience build costs, which is included at a figure of £1,100 psm compared to latest figures of £1,251 psm.
Given the viability study was only completed in July 2014, we would expect
the study to reflect the latest build costs figures.
An allowance of 10% has been included for externals; we would expect
this to be in the region of 15% for a large convenience store given the
significant investment into the provision of car parking and landscaping.
Finance (Para 5.1.10) - A finance rate of 7.5% is has been adopted; however, the appraisal summary for residential typology at Appendix B refers to a figure of 7% - which is the correct figure? Furthermore, reference is made to the fact that
the finance rate is applied to the total development costs; however, it is not clear where this includes land costs. A developer/operator would acquire the site, undertake design planning work and then construct the building. The holding costs of land therefore can themselves be critical.
Sales Costs (Para 5.1.11) - A marketing cost of 3% of GDV has been allowed for in the appraisals; within this figure we are assuming costs for an actual marketing campaign (circa 1%) and also sales agents and legal fees (2%). There doesn't
appear to be any letting agent or legal fees allowed for commercial uses; we would expect agency fees to be included at 10% of the first years rent and legal fees at 5% of the first years rents.
In addition, no allowance has been made for tenant inducements - we would expect a rent free period of at least 12 months to be allowed for within the appraisal.
Stamp Duty (Para 5.1.13) - Reference is made to Stamp Duty rates of between 0% and 4%; however, in reality the land costs associated with large convenience stores is likely to be in excess of £1m and therefore the variable rate of either 5% or more likely 7% (land value above £2m) should be adopted.
Land for Non- Residential Uses (para 5.1.14 to 5.1.17) - We note the use of £430,000 per hectare (£174,000 per acre) up to £800,000 per hectare (£324,000 per acre) for non-residential development as the baseline figures; these figures are based on employment use. However, it is not clear whether these figures have been adjusted for convenience retail uses; where the benchmark land value is more likely to be between £1.0 to £1.5m per acre. However no evidence has been provided to support the land value assumptions nor whether the appropriate adjustments have been made for convenience retail land values.
It is important to note that landowners are likely to "hold out" until they have
explored their potential returns fully, and may not sell the site if the proposed returns are below their expectations. In many cases landowners have not fully discounted the value of their land following the credit crunch and the land market correction is still taking place. This is particularly relevant for sites that have the potential for the delivery of convenience retail schemes. In the case of retail developments, landowners are likely to hold out for the highest value and are unlike to accept a reduction in their land value for CIL and therefore if values in the range referred to in para 5.1.16 have been adopted then these do not reflect market sentiment and need to be changed.
CIL Surplus & Proposed Rate (Tables 5.5,5.6,6.1 and Para 5.2.12) - The Tables shows the potential CIL Surplus for retail convenience developments ranging between £151 psm (Town Centre) to £158 psm for out of centre supermarket; these figures represent the maximum CIL surplus available. In paragraph 5.2.12 a CIL rate of £100 psm for town centre convenience and £120 psm for out of centre convenience is recommended and these are the rates that the local authority has put forward. There is no explanation as to how the figures are arrived at; for example the difference between the surpluses for town centre and out of centre convenience stores is only £8.00 psm; yet the difference in the
proposed CIL rate is £20.00psm; with the higher charged levied on the out of centre typology - no justification has been provided for these figures. Also, it is not clear whether any sensitivity analysis has been undertaken to arrive at these figures and therefore we question whether an 'Appropriate Balance' has been achieved.
CIL Guidance recommends that 'charging authority should directly sample
an appropriate range of types of sites across its area, in order to supplement existing data.' The guidance goes onto say that 'fine-grained sampling is also likely to be necessary where they wish to differentiate between categories or scales of intended use.' There appears to be no evidence provided of any sampling undertaken by the Council to support the proposed rates.
Given our comments on land values, build costs and other elements of the
development appraisals/evidence we consider that the Council has failed to achieve an 'Appropriate Balance' and that the proposed rates are set cannot be justified based on the evidence provided to date.
Appendix B - Assumptions Summary & Appendix C Sample Appraisal - The appraisal assumptions provided at Appendix B and the sample appraisal at Appendix C both relate to residential schemes, there does not appear to be a similar assumptions or appraisals provided for commercial schemes and therefore it is difficult for us to comment on the appropriateness of the proposed CIL Charge when we don't have all the information required to make an informed comment.
Appendix D - Sensitivity Analysis - The results of the sensitivity analysis illustrated in Figure D1 show that a 10% decrease in values would render convenience retail uses unviable; it is not clear as to whether the findings of this sensitivity analysis have been reflected in achieving the appropriate balance. Furthermore, only one variable has been tested and therefore build costs should also be factored into the sensitivity analysis in order to provide a more rounded view.
Summary and Conclusions
We are pleased to have been given this opportunity to comment on the Rother District Council CIL Preliminary Draft Charging Schedule. We would hope to be consulted further once the issues in this representation have been addressed.
The PBA viability study lacks detailed information on non-commercial uses making it difficult to provide a considered response. Further work and revisions are needed in order to reflect the observations above. We note the key elements to be reconsidered below:
1. We would recommend that the report is reviewed to be made clearer and more explicit. Assumptions and sources need to be cited and kept up to date;
2. Market evidence needs to be provided to support the assumptions used to develop the CIL rate.
3. The build cost assumptions which are approximately 19% cheaper than the BCIS benchmarks we have identified for supermarkets.
4. The finance rates set out in the report as 7.5% but have been included in the appraisal as 7%. Also it is not clear whether finance has been applied to land acquisition costs.
5. We would suggest an increased level of developers' profit to reflect the risks involved in retail development.
6. There are no commercial appraisals or evidence as to how the CIL rates of £100 psm and £120 psm for convenience stores have been derived and given the results of the sensitivity analysis it is clear that changes in values/costs could render schemes unviable and therefore we question whether a sufficient buffer has been allowed for in setting the CIL Charge.
Object
Community Infrastructure Levy (CIL) Preliminary Draft Charging Schedule and Regulation 123 List
Q9. Do you have any further comments on the PDCS?
Representation ID: 21714
Received: 23/09/2014
Respondent: Wm Morrison Supermarkets Plc
Agent: Peacock & Smith Ltd
The following specific comments have been made referring to the paragraph numbers in the CIL: Viability Study Report.
Study Context & Viability (Para 2.1.1 to 2.1.4) -
We agree with the residual value approach adopted by PBA in their viability assessment and the references to the relationship with planning obligations and the need for those onsite (non S123 List) costs to be included within the appraisals. However, no information has been provided as what S106 assumptions have been adopted for the retail typologies and therefore we cannot comment as to whether these are appropriate or not.
Peacock and Smith have been instructed by our client, Wm Morrison Supermarkets Plc, to submit an objection to the proposed CIL rate of £100 or £120/sq. m. for Convenience Retail.
In our view, the draft CIL charge will put undue additional risk on the delivery of any such proposals and will be an unrealistic financial burden on new retail development. This, in turn, poses a significant threat to potential new investment and job creation in the local area at a time of economic recession and low levels of development activity. Our client is concerned that a balance has not been found between infrastructure funding requirements and viability and subsequently the suggested charge will have a significant adverse impact on the overall viability of future retail development in the district.
As part of this objection, Morrisons have also instructed Aspinall Verdi to review the CIL evidence base. Aspinall Verdi's comments are attached, which conclude that the PBA viability study lacks detailed information on non-commercial uses making it difficult to provide a considered response. Further work and revisions are needed in order to reflect the observations above. They conclude that the key elements to be reconsidered are:
1. We would recommend that the report is reviewed to be made clearer and more explicit. Assumptions and sources need to be cited and kept up to date;
2. Market evidence needs to be provided to support the assumptions used to develop the CIL rate.
3. The build cost assumptions which are approximately 19% cheaper than the BCIS benchmarks we have identified for supermarkets.
4. The finance rates set out in the report as 7.5% but have been included in the appraisal as 7%. Also it is not clear whether finance has been applied to land acquisition costs.
5. We would suggest an increased level of developers' profit to reflect the risks involved in retail development.
6. There are no commercial appraisals or evidence as to how the CIL rates of £100 psm and £120 psm for convenience stores have been derivedand given the results of the sensitivity analysis it is clear that changes in values/costs could render schemes unviable and therefore we question whether a sufficient buffer has been allowed for in setting the CIL Charge
This representation has been prepared in the context of the consultation that Rother District Council have launched in respect of their Community Infrastructure Levy (CIL) Preliminary Draft Charging Schedule and Regulation 123 List (August 2014). We are instructed by W.M. Morrison Supermarkets
Plc. to make representations on their behalf.
Introduction
Aspinall Verdi Limited, Chartered Surveyors are property regeneration and development consultants with direct experience of advising both public and private sector clients with respect to development viability, S106 and planning gain matters. The firm has a thorough understanding of property markets,
valuation and development economics and delivery.
This representation has been prepared by Parm Dosanjh, BSc (Hons), DipTP, MSc, MRICS, MRTPI. Parm is a Director of AspinallVerdi and has over 15 years' experience in the planning and development consultancy sector. He is head of AspinallVerdi's London office and has advised on projects throughout
England. Parm also attended the Rother District Council's developer's workshop which was held on the 8th November 2013 and we subsequently submitted written comments to Peter Brett Associates (PBA) on the viability assumptions they had presented in respect of commercial developments. We note that a
couple of these comments/suggestions have been adopted; however, there a number which have been excluded; we address these in our response below.
This submission has been prepared with the support of Peacock & Smith town planning consultants to W.M. Morrison Plc.
For the purposes of these representations we have reviewed the following documents, prepared by or Rother District Council;
1. Community Infrastructure Levy - Economic Viability Assessment, Peter Brett Associate, Final Report July 2014
2. Community Infrastructure Levy - Preliminary Draft Charging Schedule and Regulation 123 List, Rother District Council, August 2014
3. Infrastructure Delivery Plan, Rother District Council, June 2014
General Comments
Prior to making specific comments in response to the consultation questions that have been raised we draw attention to the following:
1. Regulations and guidance for Local Authorities preparing their CIL Charging Schedules should be based on appropriate evidence. There is a lack of information/detail (e.g. the actual retail/commercial development appraisals are missing) provided in respect of the retail (and commercial) typologies making it difficult for us to understand how the CIL Charges have been derived, analysis all the assumptions (e.g. development timescales or contingency etc.) and
provide you with detailed comments. We strongly recommend that the development appraisals for the commercial typologies are made available for consultation.
2. The interrelationship of CIL and site specific S106 is critical to the commercial viability of development and regeneration projects such as foodstores. In many cases the foodstore is linked to a wider development scheme or masterplan involving other uses and infrastructure such as roads. Therefore the preparation and inclusion of infrastructure elements to the Regulation 123 List needs to be clearly defined and understood to avoid double counting. Typical 'site specific' S106/S278 costs that will be outwith the Regulation 123 List should be factored into the CIL Viability Modelling. We note that the PBA viability assessment refers to this issue; however, as mentioned in point 1 above we do not know what figures have actual been adopted in their viability models and whether these are sufficient/appropriate.
3. We note that a relatively significant amount of retail development is proposed within the plan and therefore, should the evidence base and viability work undertaken not support the level of CIL being proposed, then this would affect the delivery of the plan.
4. Request to be heard. Should any changes be made to the CIL Charging Schedule in relation to Use Class 'A' across the Authority boundary, then we would reserve the right to make representations and be heard.
Specific Comments
The following specific comments have been made referring to the paragraph numbers in the CIL: Viability Study Report.
Item (Paragraph Number)
Study Context & Viability (Para 2.1.1 to 2.1.4) -
We agree with the residual value approach adopted by PBA in their viability assessment and the references to the relationship with planning obligations and the need for those onsite (non S123 List) costs to be included within the appraisals. However, no information has been provided as what S106 assumptions have been adopted for the retail typologies and therefore we cannot comment as to whether these are appropriate or not.
Land Uses (Para 3.2.2 and Para 5.1.3) - We agree with utilising the available evidence as the basis for focussing the CIL study. We consider it appropriate to review recent patterns of development, and planning policy objectives to provide a broad indication of what may happen in the future. CIL after all is to be focussed on areas expecting development.
However, there appears to be no analyses or information provided of recent patterns of development, or the planning policy objectives relevant to convenience retailing, or changes in the foodstore market. In fact the study only refers to Large and Local Convenience Use (Para 5.1.3) and no floorspace figures are provided, therefore it is difficult to determine whether the proposed unit sizes for the convenience units are appropriate.
With regards to the large superstore typology we would expect this to be a
store of circa 5,000 sq m plus; given no commercial appraisals have been
provided we do not know what floorspace assumptions have been adopted.
Profit on Cost (Para 5.5.5) - We would suggest that the developers profit level for the retail foodstore option is increased to 25% on cost based on:
* Developer's site assembly risk;
* Holding costs and timescales to complete a development and secure returns can be very long;
* The complexity and timescales for developing significant mixed use development;
* Planning costs and risks (some of which could be abortive)
Build Costs (Para 5.1.6) - A build costs allowance of £1,265 psm for Superstores /Supermarkets has been allowed for; the costs have been derived from BCIS median. We have reviewed the latest BCIS build costs and for foodstore developments of between 1,000 and 7,000 sqm a build cost (median and rebased to the Rother area) of £1,524 psm; this equates to a percentage difference of circa 19% - which on a 5,000 sqm foodstore equates to an additional
£1,295,000 on the build cost alone; the other costs e.g. contingency., external and professionals fees which are linked to build costs would also increase; thus impacting on the surplus available for CIL. The same issue applies to the Local Convenience build costs, which is included at a figure of £1,100 psm compared to latest figures of £1,251 psm.
Given the viability study was only completed in July 2014, we would expect
the study to reflect the latest build costs figures.
An allowance of 10% has been included for externals; we would expect
this to be in the region of 15% for a large convenience store given the
significant investment into the provision of car parking and landscaping.
Finance (Para 5.1.10) - A finance rate of 7.5% is has been adopted; however, the appraisal summary for residential typology at Appendix B refers to a figure of 7% - which is the correct figure? Furthermore, reference is made to the fact that
the finance rate is applied to the total development costs; however, it is not clear where this includes land costs. A developer/operator would acquire the site, undertake design planning work and then construct the building. The holding costs of land therefore can themselves be critical.
Sales Costs (Para 5.1.11) - A marketing cost of 3% of GDV has been allowed for in the appraisals; within this figure we are assuming costs for an actual marketing campaign (circa 1%) and also sales agents and legal fees (2%). There doesn't
appear to be any letting agent or legal fees allowed for commercial uses; we would expect agency fees to be included at 10% of the first years rent and legal fees at 5% of the first years rents.
In addition, no allowance has been made for tenant inducements - we would expect a rent free period of at least 12 months to be allowed for within the appraisal.
Stamp Duty (Para 5.1.13) - Reference is made to Stamp Duty rates of between 0% and 4%; however, in reality the land costs associated with large convenience stores is likely to be in excess of £1m and therefore the variable rate of either 5% or more likely 7% (land value above £2m) should be adopted.
Land for Non- Residential Uses (para 5.1.14 to 5.1.17) - We note the use of £430,000 per hectare (£174,000 per acre) up to £800,000 per hectare (£324,000 per acre) for non-residential development as the baseline figures; these figures are based on employment use. However, it is not clear whether these figures have been adjusted for convenience retail uses; where the benchmark land value is more likely to be between £1.0 to £1.5m per acre. However no evidence has been provided to support the land value assumptions nor whether the appropriate adjustments have been made for convenience retail land values.
It is important to note that landowners are likely to "hold out" until they have
explored their potential returns fully, and may not sell the site if the proposed returns are below their expectations. In many cases landowners have not fully discounted the value of their land following the credit crunch and the land market correction is still taking place. This is particularly relevant for sites that have the potential for the delivery of convenience retail schemes. In the case of retail developments, landowners are likely to hold out for the highest value and are unlike to accept a reduction in their land value for CIL and therefore if values in the range referred to in para 5.1.16 have been adopted then these do not reflect market sentiment and need to be changed.
CIL Surplus & Proposed Rate (Tables 5.5,5.6,6.1 and Para 5.2.12) - The Tables shows the potential CIL Surplus for retail convenience developments ranging between £151 psm (Town Centre) to £158 psm for out of centre supermarket; these figures represent the maximum CIL surplus available. In paragraph 5.2.12 a CIL rate of £100 psm for town centre convenience and £120 psm for out of centre convenience is recommended and these are the rates that the local authority has put forward. There is no explanation as to how the figures are arrived at; for example the difference between the surpluses for town centre and out of centre convenience stores is only £8.00 psm; yet the difference in the
proposed CIL rate is £20.00psm; with the higher charged levied on the out of centre typology - no justification has been provided for these figures. Also, it is not clear whether any sensitivity analysis has been undertaken to arrive at these figures and therefore we question whether an 'Appropriate Balance' has been achieved.
CIL Guidance recommends that 'charging authority should directly sample
an appropriate range of types of sites across its area, in order to supplement existing data.' The guidance goes onto say that 'fine-grained sampling is also likely to be necessary where they wish to differentiate between categories or scales of intended use.' There appears to be no evidence provided of any sampling undertaken by the Council to support the proposed rates.
Given our comments on land values, build costs and other elements of the
development appraisals/evidence we consider that the Council has failed to achieve an 'Appropriate Balance' and that the proposed rates are set cannot be justified based on the evidence provided to date.
Appendix B - Assumptions Summary & Appendix C Sample Appraisal - The appraisal assumptions provided at Appendix B and the sample appraisal at Appendix C both relate to residential schemes, there does not appear to be a similar assumptions or appraisals provided for commercial schemes and therefore it is difficult for us to comment on the appropriateness of the proposed CIL Charge when we don't have all the information required to make an informed comment.
Appendix D - Sensitivity Analysis - The results of the sensitivity analysis illustrated in Figure D1 show that a 10% decrease in values would render convenience retail uses unviable; it is not clear as to whether the findings of this sensitivity analysis have been reflected in achieving the appropriate balance. Furthermore, only one variable has been tested and therefore build costs should also be factored into the sensitivity analysis in order to provide a more rounded view.
Summary and Conclusions
We are pleased to have been given this opportunity to comment on the Rother District Council CIL Preliminary Draft Charging Schedule. We would hope to be consulted further once the issues in this representation have been addressed.
The PBA viability study lacks detailed information on non-commercial uses making it difficult to provide a considered response. Further work and revisions are needed in order to reflect the observations above. We note the key elements to be reconsidered below:
1. We would recommend that the report is reviewed to be made clearer and more explicit. Assumptions and sources need to be cited and kept up to date;
2. Market evidence needs to be provided to support the assumptions used to develop the CIL rate.
3. The build cost assumptions which are approximately 19% cheaper than the BCIS benchmarks we have identified for supermarkets.
4. The finance rates set out in the report as 7.5% but have been included in the appraisal as 7%. Also it is not clear whether finance has been applied to land acquisition costs.
5. We would suggest an increased level of developers' profit to reflect the risks involved in retail development.
6. There are no commercial appraisals or evidence as to how the CIL rates of £100 psm and £120 psm for convenience stores have been derived and given the results of the sensitivity analysis it is clear that changes in values/costs could render schemes unviable and therefore we question whether a sufficient buffer has been allowed for in setting the CIL Charge.
Object
Community Infrastructure Levy (CIL) Preliminary Draft Charging Schedule and Regulation 123 List
Q9. Do you have any further comments on the PDCS?
Representation ID: 21715
Received: 23/09/2014
Respondent: Wm Morrison Supermarkets Plc
Agent: Peacock & Smith Ltd
CIL Viability Report - Land Uses (Para 3.2.2/Para 5.1.3)
We agree with utilising the available evidence as the basis for the study. It is appropriate to review recent patterns of development, and planning policy to provide a broad indication of the future.
However, there is no analyses/information provided of recent patterns of development, or the planning policy objectives relevant to convenience retailing/changes in the foodstore market. The study only refers to Large and Local Convenience Use (Para 5.1.3) and no floorspace figures are provided.
With regards to the large superstore typology no commercial appraisals have been provided.
Peacock and Smith have been instructed by our client, Wm Morrison Supermarkets Plc, to submit an objection to the proposed CIL rate of £100 or £120/sq. m. for Convenience Retail.
In our view, the draft CIL charge will put undue additional risk on the delivery of any such proposals and will be an unrealistic financial burden on new retail development. This, in turn, poses a significant threat to potential new investment and job creation in the local area at a time of economic recession and low levels of development activity. Our client is concerned that a balance has not been found between infrastructure funding requirements and viability and subsequently the suggested charge will have a significant adverse impact on the overall viability of future retail development in the district.
As part of this objection, Morrisons have also instructed Aspinall Verdi to review the CIL evidence base. Aspinall Verdi's comments are attached, which conclude that the PBA viability study lacks detailed information on non-commercial uses making it difficult to provide a considered response. Further work and revisions are needed in order to reflect the observations above. They conclude that the key elements to be reconsidered are:
1. We would recommend that the report is reviewed to be made clearer and more explicit. Assumptions and sources need to be cited and kept up to date;
2. Market evidence needs to be provided to support the assumptions used to develop the CIL rate.
3. The build cost assumptions which are approximately 19% cheaper than the BCIS benchmarks we have identified for supermarkets.
4. The finance rates set out in the report as 7.5% but have been included in the appraisal as 7%. Also it is not clear whether finance has been applied to land acquisition costs.
5. We would suggest an increased level of developers' profit to reflect the risks involved in retail development.
6. There are no commercial appraisals or evidence as to how the CIL rates of £100 psm and £120 psm for convenience stores have been derivedand given the results of the sensitivity analysis it is clear that changes in values/costs could render schemes unviable and therefore we question whether a sufficient buffer has been allowed for in setting the CIL Charge
This representation has been prepared in the context of the consultation that Rother District Council have launched in respect of their Community Infrastructure Levy (CIL) Preliminary Draft Charging Schedule and Regulation 123 List (August 2014). We are instructed by W.M. Morrison Supermarkets
Plc. to make representations on their behalf.
Introduction
Aspinall Verdi Limited, Chartered Surveyors are property regeneration and development consultants with direct experience of advising both public and private sector clients with respect to development viability, S106 and planning gain matters. The firm has a thorough understanding of property markets,
valuation and development economics and delivery.
This representation has been prepared by Parm Dosanjh, BSc (Hons), DipTP, MSc, MRICS, MRTPI. Parm is a Director of AspinallVerdi and has over 15 years' experience in the planning and development consultancy sector. He is head of AspinallVerdi's London office and has advised on projects throughout
England. Parm also attended the Rother District Council's developer's workshop which was held on the 8th November 2013 and we subsequently submitted written comments to Peter Brett Associates (PBA) on the viability assumptions they had presented in respect of commercial developments. We note that a
couple of these comments/suggestions have been adopted; however, there a number which have been excluded; we address these in our response below.
This submission has been prepared with the support of Peacock & Smith town planning consultants to W.M. Morrison Plc.
For the purposes of these representations we have reviewed the following documents, prepared by or Rother District Council;
1. Community Infrastructure Levy - Economic Viability Assessment, Peter Brett Associate, Final Report July 2014
2. Community Infrastructure Levy - Preliminary Draft Charging Schedule and Regulation 123 List, Rother District Council, August 2014
3. Infrastructure Delivery Plan, Rother District Council, June 2014
General Comments
Prior to making specific comments in response to the consultation questions that have been raised we draw attention to the following:
1. Regulations and guidance for Local Authorities preparing their CIL Charging Schedules should be based on appropriate evidence. There is a lack of information/detail (e.g. the actual retail/commercial development appraisals are missing) provided in respect of the retail (and commercial) typologies making it difficult for us to understand how the CIL Charges have been derived, analysis all the assumptions (e.g. development timescales or contingency etc.) and
provide you with detailed comments. We strongly recommend that the development appraisals for the commercial typologies are made available for consultation.
2. The interrelationship of CIL and site specific S106 is critical to the commercial viability of development and regeneration projects such as foodstores. In many cases the foodstore is linked to a wider development scheme or masterplan involving other uses and infrastructure such as roads. Therefore the preparation and inclusion of infrastructure elements to the Regulation 123 List needs to be clearly defined and understood to avoid double counting. Typical 'site specific' S106/S278 costs that will be outwith the Regulation 123 List should be factored into the CIL Viability Modelling. We note that the PBA viability assessment refers to this issue; however, as mentioned in point 1 above we do not know what figures have actual been adopted in their viability models and whether these are sufficient/appropriate.
3. We note that a relatively significant amount of retail development is proposed within the plan and therefore, should the evidence base and viability work undertaken not support the level of CIL being proposed, then this would affect the delivery of the plan.
4. Request to be heard. Should any changes be made to the CIL Charging Schedule in relation to Use Class 'A' across the Authority boundary, then we would reserve the right to make representations and be heard.
Specific Comments
The following specific comments have been made referring to the paragraph numbers in the CIL: Viability Study Report.
Item (Paragraph Number)
Study Context & Viability (Para 2.1.1 to 2.1.4) -
We agree with the residual value approach adopted by PBA in their viability assessment and the references to the relationship with planning obligations and the need for those onsite (non S123 List) costs to be included within the appraisals. However, no information has been provided as what S106 assumptions have been adopted for the retail typologies and therefore we cannot comment as to whether these are appropriate or not.
Land Uses (Para 3.2.2 and Para 5.1.3) - We agree with utilising the available evidence as the basis for focussing the CIL study. We consider it appropriate to review recent patterns of development, and planning policy objectives to provide a broad indication of what may happen in the future. CIL after all is to be focussed on areas expecting development.
However, there appears to be no analyses or information provided of recent patterns of development, or the planning policy objectives relevant to convenience retailing, or changes in the foodstore market. In fact the study only refers to Large and Local Convenience Use (Para 5.1.3) and no floorspace figures are provided, therefore it is difficult to determine whether the proposed unit sizes for the convenience units are appropriate.
With regards to the large superstore typology we would expect this to be a
store of circa 5,000 sq m plus; given no commercial appraisals have been
provided we do not know what floorspace assumptions have been adopted.
Profit on Cost (Para 5.5.5) - We would suggest that the developers profit level for the retail foodstore option is increased to 25% on cost based on:
* Developer's site assembly risk;
* Holding costs and timescales to complete a development and secure returns can be very long;
* The complexity and timescales for developing significant mixed use development;
* Planning costs and risks (some of which could be abortive)
Build Costs (Para 5.1.6) - A build costs allowance of £1,265 psm for Superstores /Supermarkets has been allowed for; the costs have been derived from BCIS median. We have reviewed the latest BCIS build costs and for foodstore developments of between 1,000 and 7,000 sqm a build cost (median and rebased to the Rother area) of £1,524 psm; this equates to a percentage difference of circa 19% - which on a 5,000 sqm foodstore equates to an additional
£1,295,000 on the build cost alone; the other costs e.g. contingency., external and professionals fees which are linked to build costs would also increase; thus impacting on the surplus available for CIL. The same issue applies to the Local Convenience build costs, which is included at a figure of £1,100 psm compared to latest figures of £1,251 psm.
Given the viability study was only completed in July 2014, we would expect
the study to reflect the latest build costs figures.
An allowance of 10% has been included for externals; we would expect
this to be in the region of 15% for a large convenience store given the
significant investment into the provision of car parking and landscaping.
Finance (Para 5.1.10) - A finance rate of 7.5% is has been adopted; however, the appraisal summary for residential typology at Appendix B refers to a figure of 7% - which is the correct figure? Furthermore, reference is made to the fact that
the finance rate is applied to the total development costs; however, it is not clear where this includes land costs. A developer/operator would acquire the site, undertake design planning work and then construct the building. The holding costs of land therefore can themselves be critical.
Sales Costs (Para 5.1.11) - A marketing cost of 3% of GDV has been allowed for in the appraisals; within this figure we are assuming costs for an actual marketing campaign (circa 1%) and also sales agents and legal fees (2%). There doesn't
appear to be any letting agent or legal fees allowed for commercial uses; we would expect agency fees to be included at 10% of the first years rent and legal fees at 5% of the first years rents.
In addition, no allowance has been made for tenant inducements - we would expect a rent free period of at least 12 months to be allowed for within the appraisal.
Stamp Duty (Para 5.1.13) - Reference is made to Stamp Duty rates of between 0% and 4%; however, in reality the land costs associated with large convenience stores is likely to be in excess of £1m and therefore the variable rate of either 5% or more likely 7% (land value above £2m) should be adopted.
Land for Non- Residential Uses (para 5.1.14 to 5.1.17) - We note the use of £430,000 per hectare (£174,000 per acre) up to £800,000 per hectare (£324,000 per acre) for non-residential development as the baseline figures; these figures are based on employment use. However, it is not clear whether these figures have been adjusted for convenience retail uses; where the benchmark land value is more likely to be between £1.0 to £1.5m per acre. However no evidence has been provided to support the land value assumptions nor whether the appropriate adjustments have been made for convenience retail land values.
It is important to note that landowners are likely to "hold out" until they have
explored their potential returns fully, and may not sell the site if the proposed returns are below their expectations. In many cases landowners have not fully discounted the value of their land following the credit crunch and the land market correction is still taking place. This is particularly relevant for sites that have the potential for the delivery of convenience retail schemes. In the case of retail developments, landowners are likely to hold out for the highest value and are unlike to accept a reduction in their land value for CIL and therefore if values in the range referred to in para 5.1.16 have been adopted then these do not reflect market sentiment and need to be changed.
CIL Surplus & Proposed Rate (Tables 5.5,5.6,6.1 and Para 5.2.12) - The Tables shows the potential CIL Surplus for retail convenience developments ranging between £151 psm (Town Centre) to £158 psm for out of centre supermarket; these figures represent the maximum CIL surplus available. In paragraph 5.2.12 a CIL rate of £100 psm for town centre convenience and £120 psm for out of centre convenience is recommended and these are the rates that the local authority has put forward. There is no explanation as to how the figures are arrived at; for example the difference between the surpluses for town centre and out of centre convenience stores is only £8.00 psm; yet the difference in the
proposed CIL rate is £20.00psm; with the higher charged levied on the out of centre typology - no justification has been provided for these figures. Also, it is not clear whether any sensitivity analysis has been undertaken to arrive at these figures and therefore we question whether an 'Appropriate Balance' has been achieved.
CIL Guidance recommends that 'charging authority should directly sample
an appropriate range of types of sites across its area, in order to supplement existing data.' The guidance goes onto say that 'fine-grained sampling is also likely to be necessary where they wish to differentiate between categories or scales of intended use.' There appears to be no evidence provided of any sampling undertaken by the Council to support the proposed rates.
Given our comments on land values, build costs and other elements of the
development appraisals/evidence we consider that the Council has failed to achieve an 'Appropriate Balance' and that the proposed rates are set cannot be justified based on the evidence provided to date.
Appendix B - Assumptions Summary & Appendix C Sample Appraisal - The appraisal assumptions provided at Appendix B and the sample appraisal at Appendix C both relate to residential schemes, there does not appear to be a similar assumptions or appraisals provided for commercial schemes and therefore it is difficult for us to comment on the appropriateness of the proposed CIL Charge when we don't have all the information required to make an informed comment.
Appendix D - Sensitivity Analysis - The results of the sensitivity analysis illustrated in Figure D1 show that a 10% decrease in values would render convenience retail uses unviable; it is not clear as to whether the findings of this sensitivity analysis have been reflected in achieving the appropriate balance. Furthermore, only one variable has been tested and therefore build costs should also be factored into the sensitivity analysis in order to provide a more rounded view.
Summary and Conclusions
We are pleased to have been given this opportunity to comment on the Rother District Council CIL Preliminary Draft Charging Schedule. We would hope to be consulted further once the issues in this representation have been addressed.
The PBA viability study lacks detailed information on non-commercial uses making it difficult to provide a considered response. Further work and revisions are needed in order to reflect the observations above. We note the key elements to be reconsidered below:
1. We would recommend that the report is reviewed to be made clearer and more explicit. Assumptions and sources need to be cited and kept up to date;
2. Market evidence needs to be provided to support the assumptions used to develop the CIL rate.
3. The build cost assumptions which are approximately 19% cheaper than the BCIS benchmarks we have identified for supermarkets.
4. The finance rates set out in the report as 7.5% but have been included in the appraisal as 7%. Also it is not clear whether finance has been applied to land acquisition costs.
5. We would suggest an increased level of developers' profit to reflect the risks involved in retail development.
6. There are no commercial appraisals or evidence as to how the CIL rates of £100 psm and £120 psm for convenience stores have been derived and given the results of the sensitivity analysis it is clear that changes in values/costs could render schemes unviable and therefore we question whether a sufficient buffer has been allowed for in setting the CIL Charge.
Object
Community Infrastructure Levy (CIL) Preliminary Draft Charging Schedule and Regulation 123 List
Q9. Do you have any further comments on the PDCS?
Representation ID: 21716
Received: 23/09/2014
Respondent: Wm Morrison Supermarkets Plc
Agent: Peacock & Smith Ltd
CIL Viability Report - Profit on Cost (Para 5.5.5) - We would suggest that the developers profit level for the retail foodstore option is increased to 25% on cost based on:
* Developer's site assembly risk;
* Holding costs and timescales to complete a development and secure returns can be very long;
* The complexity and timescales for developing significant mixed use development;
* Planning costs and risks (some of which could be abortive)
Peacock and Smith have been instructed by our client, Wm Morrison Supermarkets Plc, to submit an objection to the proposed CIL rate of £100 or £120/sq. m. for Convenience Retail.
In our view, the draft CIL charge will put undue additional risk on the delivery of any such proposals and will be an unrealistic financial burden on new retail development. This, in turn, poses a significant threat to potential new investment and job creation in the local area at a time of economic recession and low levels of development activity. Our client is concerned that a balance has not been found between infrastructure funding requirements and viability and subsequently the suggested charge will have a significant adverse impact on the overall viability of future retail development in the district.
As part of this objection, Morrisons have also instructed Aspinall Verdi to review the CIL evidence base. Aspinall Verdi's comments are attached, which conclude that the PBA viability study lacks detailed information on non-commercial uses making it difficult to provide a considered response. Further work and revisions are needed in order to reflect the observations above. They conclude that the key elements to be reconsidered are:
1. We would recommend that the report is reviewed to be made clearer and more explicit. Assumptions and sources need to be cited and kept up to date;
2. Market evidence needs to be provided to support the assumptions used to develop the CIL rate.
3. The build cost assumptions which are approximately 19% cheaper than the BCIS benchmarks we have identified for supermarkets.
4. The finance rates set out in the report as 7.5% but have been included in the appraisal as 7%. Also it is not clear whether finance has been applied to land acquisition costs.
5. We would suggest an increased level of developers' profit to reflect the risks involved in retail development.
6. There are no commercial appraisals or evidence as to how the CIL rates of £100 psm and £120 psm for convenience stores have been derivedand given the results of the sensitivity analysis it is clear that changes in values/costs could render schemes unviable and therefore we question whether a sufficient buffer has been allowed for in setting the CIL Charge
This representation has been prepared in the context of the consultation that Rother District Council have launched in respect of their Community Infrastructure Levy (CIL) Preliminary Draft Charging Schedule and Regulation 123 List (August 2014). We are instructed by W.M. Morrison Supermarkets
Plc. to make representations on their behalf.
Introduction
Aspinall Verdi Limited, Chartered Surveyors are property regeneration and development consultants with direct experience of advising both public and private sector clients with respect to development viability, S106 and planning gain matters. The firm has a thorough understanding of property markets,
valuation and development economics and delivery.
This representation has been prepared by Parm Dosanjh, BSc (Hons), DipTP, MSc, MRICS, MRTPI. Parm is a Director of AspinallVerdi and has over 15 years' experience in the planning and development consultancy sector. He is head of AspinallVerdi's London office and has advised on projects throughout
England. Parm also attended the Rother District Council's developer's workshop which was held on the 8th November 2013 and we subsequently submitted written comments to Peter Brett Associates (PBA) on the viability assumptions they had presented in respect of commercial developments. We note that a
couple of these comments/suggestions have been adopted; however, there a number which have been excluded; we address these in our response below.
This submission has been prepared with the support of Peacock & Smith town planning consultants to W.M. Morrison Plc.
For the purposes of these representations we have reviewed the following documents, prepared by or Rother District Council;
1. Community Infrastructure Levy - Economic Viability Assessment, Peter Brett Associate, Final Report July 2014
2. Community Infrastructure Levy - Preliminary Draft Charging Schedule and Regulation 123 List, Rother District Council, August 2014
3. Infrastructure Delivery Plan, Rother District Council, June 2014
General Comments
Prior to making specific comments in response to the consultation questions that have been raised we draw attention to the following:
1. Regulations and guidance for Local Authorities preparing their CIL Charging Schedules should be based on appropriate evidence. There is a lack of information/detail (e.g. the actual retail/commercial development appraisals are missing) provided in respect of the retail (and commercial) typologies making it difficult for us to understand how the CIL Charges have been derived, analysis all the assumptions (e.g. development timescales or contingency etc.) and
provide you with detailed comments. We strongly recommend that the development appraisals for the commercial typologies are made available for consultation.
2. The interrelationship of CIL and site specific S106 is critical to the commercial viability of development and regeneration projects such as foodstores. In many cases the foodstore is linked to a wider development scheme or masterplan involving other uses and infrastructure such as roads. Therefore the preparation and inclusion of infrastructure elements to the Regulation 123 List needs to be clearly defined and understood to avoid double counting. Typical 'site specific' S106/S278 costs that will be outwith the Regulation 123 List should be factored into the CIL Viability Modelling. We note that the PBA viability assessment refers to this issue; however, as mentioned in point 1 above we do not know what figures have actual been adopted in their viability models and whether these are sufficient/appropriate.
3. We note that a relatively significant amount of retail development is proposed within the plan and therefore, should the evidence base and viability work undertaken not support the level of CIL being proposed, then this would affect the delivery of the plan.
4. Request to be heard. Should any changes be made to the CIL Charging Schedule in relation to Use Class 'A' across the Authority boundary, then we would reserve the right to make representations and be heard.
Specific Comments
The following specific comments have been made referring to the paragraph numbers in the CIL: Viability Study Report.
Item (Paragraph Number)
Study Context & Viability (Para 2.1.1 to 2.1.4) -
We agree with the residual value approach adopted by PBA in their viability assessment and the references to the relationship with planning obligations and the need for those onsite (non S123 List) costs to be included within the appraisals. However, no information has been provided as what S106 assumptions have been adopted for the retail typologies and therefore we cannot comment as to whether these are appropriate or not.
Land Uses (Para 3.2.2 and Para 5.1.3) - We agree with utilising the available evidence as the basis for focussing the CIL study. We consider it appropriate to review recent patterns of development, and planning policy objectives to provide a broad indication of what may happen in the future. CIL after all is to be focussed on areas expecting development.
However, there appears to be no analyses or information provided of recent patterns of development, or the planning policy objectives relevant to convenience retailing, or changes in the foodstore market. In fact the study only refers to Large and Local Convenience Use (Para 5.1.3) and no floorspace figures are provided, therefore it is difficult to determine whether the proposed unit sizes for the convenience units are appropriate.
With regards to the large superstore typology we would expect this to be a
store of circa 5,000 sq m plus; given no commercial appraisals have been
provided we do not know what floorspace assumptions have been adopted.
Profit on Cost (Para 5.5.5) - We would suggest that the developers profit level for the retail foodstore option is increased to 25% on cost based on:
* Developer's site assembly risk;
* Holding costs and timescales to complete a development and secure returns can be very long;
* The complexity and timescales for developing significant mixed use development;
* Planning costs and risks (some of which could be abortive)
Build Costs (Para 5.1.6) - A build costs allowance of £1,265 psm for Superstores /Supermarkets has been allowed for; the costs have been derived from BCIS median. We have reviewed the latest BCIS build costs and for foodstore developments of between 1,000 and 7,000 sqm a build cost (median and rebased to the Rother area) of £1,524 psm; this equates to a percentage difference of circa 19% - which on a 5,000 sqm foodstore equates to an additional
£1,295,000 on the build cost alone; the other costs e.g. contingency., external and professionals fees which are linked to build costs would also increase; thus impacting on the surplus available for CIL. The same issue applies to the Local Convenience build costs, which is included at a figure of £1,100 psm compared to latest figures of £1,251 psm.
Given the viability study was only completed in July 2014, we would expect
the study to reflect the latest build costs figures.
An allowance of 10% has been included for externals; we would expect
this to be in the region of 15% for a large convenience store given the
significant investment into the provision of car parking and landscaping.
Finance (Para 5.1.10) - A finance rate of 7.5% is has been adopted; however, the appraisal summary for residential typology at Appendix B refers to a figure of 7% - which is the correct figure? Furthermore, reference is made to the fact that
the finance rate is applied to the total development costs; however, it is not clear where this includes land costs. A developer/operator would acquire the site, undertake design planning work and then construct the building. The holding costs of land therefore can themselves be critical.
Sales Costs (Para 5.1.11) - A marketing cost of 3% of GDV has been allowed for in the appraisals; within this figure we are assuming costs for an actual marketing campaign (circa 1%) and also sales agents and legal fees (2%). There doesn't
appear to be any letting agent or legal fees allowed for commercial uses; we would expect agency fees to be included at 10% of the first years rent and legal fees at 5% of the first years rents.
In addition, no allowance has been made for tenant inducements - we would expect a rent free period of at least 12 months to be allowed for within the appraisal.
Stamp Duty (Para 5.1.13) - Reference is made to Stamp Duty rates of between 0% and 4%; however, in reality the land costs associated with large convenience stores is likely to be in excess of £1m and therefore the variable rate of either 5% or more likely 7% (land value above £2m) should be adopted.
Land for Non- Residential Uses (para 5.1.14 to 5.1.17) - We note the use of £430,000 per hectare (£174,000 per acre) up to £800,000 per hectare (£324,000 per acre) for non-residential development as the baseline figures; these figures are based on employment use. However, it is not clear whether these figures have been adjusted for convenience retail uses; where the benchmark land value is more likely to be between £1.0 to £1.5m per acre. However no evidence has been provided to support the land value assumptions nor whether the appropriate adjustments have been made for convenience retail land values.
It is important to note that landowners are likely to "hold out" until they have
explored their potential returns fully, and may not sell the site if the proposed returns are below their expectations. In many cases landowners have not fully discounted the value of their land following the credit crunch and the land market correction is still taking place. This is particularly relevant for sites that have the potential for the delivery of convenience retail schemes. In the case of retail developments, landowners are likely to hold out for the highest value and are unlike to accept a reduction in their land value for CIL and therefore if values in the range referred to in para 5.1.16 have been adopted then these do not reflect market sentiment and need to be changed.
CIL Surplus & Proposed Rate (Tables 5.5,5.6,6.1 and Para 5.2.12) - The Tables shows the potential CIL Surplus for retail convenience developments ranging between £151 psm (Town Centre) to £158 psm for out of centre supermarket; these figures represent the maximum CIL surplus available. In paragraph 5.2.12 a CIL rate of £100 psm for town centre convenience and £120 psm for out of centre convenience is recommended and these are the rates that the local authority has put forward. There is no explanation as to how the figures are arrived at; for example the difference between the surpluses for town centre and out of centre convenience stores is only £8.00 psm; yet the difference in the
proposed CIL rate is £20.00psm; with the higher charged levied on the out of centre typology - no justification has been provided for these figures. Also, it is not clear whether any sensitivity analysis has been undertaken to arrive at these figures and therefore we question whether an 'Appropriate Balance' has been achieved.
CIL Guidance recommends that 'charging authority should directly sample
an appropriate range of types of sites across its area, in order to supplement existing data.' The guidance goes onto say that 'fine-grained sampling is also likely to be necessary where they wish to differentiate between categories or scales of intended use.' There appears to be no evidence provided of any sampling undertaken by the Council to support the proposed rates.
Given our comments on land values, build costs and other elements of the
development appraisals/evidence we consider that the Council has failed to achieve an 'Appropriate Balance' and that the proposed rates are set cannot be justified based on the evidence provided to date.
Appendix B - Assumptions Summary & Appendix C Sample Appraisal - The appraisal assumptions provided at Appendix B and the sample appraisal at Appendix C both relate to residential schemes, there does not appear to be a similar assumptions or appraisals provided for commercial schemes and therefore it is difficult for us to comment on the appropriateness of the proposed CIL Charge when we don't have all the information required to make an informed comment.
Appendix D - Sensitivity Analysis - The results of the sensitivity analysis illustrated in Figure D1 show that a 10% decrease in values would render convenience retail uses unviable; it is not clear as to whether the findings of this sensitivity analysis have been reflected in achieving the appropriate balance. Furthermore, only one variable has been tested and therefore build costs should also be factored into the sensitivity analysis in order to provide a more rounded view.
Summary and Conclusions
We are pleased to have been given this opportunity to comment on the Rother District Council CIL Preliminary Draft Charging Schedule. We would hope to be consulted further once the issues in this representation have been addressed.
The PBA viability study lacks detailed information on non-commercial uses making it difficult to provide a considered response. Further work and revisions are needed in order to reflect the observations above. We note the key elements to be reconsidered below:
1. We would recommend that the report is reviewed to be made clearer and more explicit. Assumptions and sources need to be cited and kept up to date;
2. Market evidence needs to be provided to support the assumptions used to develop the CIL rate.
3. The build cost assumptions which are approximately 19% cheaper than the BCIS benchmarks we have identified for supermarkets.
4. The finance rates set out in the report as 7.5% but have been included in the appraisal as 7%. Also it is not clear whether finance has been applied to land acquisition costs.
5. We would suggest an increased level of developers' profit to reflect the risks involved in retail development.
6. There are no commercial appraisals or evidence as to how the CIL rates of £100 psm and £120 psm for convenience stores have been derived and given the results of the sensitivity analysis it is clear that changes in values/costs could render schemes unviable and therefore we question whether a sufficient buffer has been allowed for in setting the CIL Charge.
Object
Community Infrastructure Levy (CIL) Preliminary Draft Charging Schedule and Regulation 123 List
Q9. Do you have any further comments on the PDCS?
Representation ID: 21717
Received: 23/09/2014
Respondent: Wm Morrison Supermarkets Plc
Agent: Peacock & Smith Ltd
CIL Viability Study - Build Costs (Para 5.1.6) - A build costs allowance of £1,265 psm for Superstores/Supermarkets has been allowed for. We have reviewed the latest BCIS build costs and for foodstore developments of between 1,000 and 7,000 sqm a build cost of £1,524 psm; this equates to a percentage difference of circa 19%.
The viability study was completed in July 2014 and should reflect latest build costs figures.
An allowance of 10% has been included for externals; we would expect this to be in the region of 15% for a large convenience store.
Peacock and Smith have been instructed by our client, Wm Morrison Supermarkets Plc, to submit an objection to the proposed CIL rate of £100 or £120/sq. m. for Convenience Retail.
In our view, the draft CIL charge will put undue additional risk on the delivery of any such proposals and will be an unrealistic financial burden on new retail development. This, in turn, poses a significant threat to potential new investment and job creation in the local area at a time of economic recession and low levels of development activity. Our client is concerned that a balance has not been found between infrastructure funding requirements and viability and subsequently the suggested charge will have a significant adverse impact on the overall viability of future retail development in the district.
As part of this objection, Morrisons have also instructed Aspinall Verdi to review the CIL evidence base. Aspinall Verdi's comments are attached, which conclude that the PBA viability study lacks detailed information on non-commercial uses making it difficult to provide a considered response. Further work and revisions are needed in order to reflect the observations above. They conclude that the key elements to be reconsidered are:
1. We would recommend that the report is reviewed to be made clearer and more explicit. Assumptions and sources need to be cited and kept up to date;
2. Market evidence needs to be provided to support the assumptions used to develop the CIL rate.
3. The build cost assumptions which are approximately 19% cheaper than the BCIS benchmarks we have identified for supermarkets.
4. The finance rates set out in the report as 7.5% but have been included in the appraisal as 7%. Also it is not clear whether finance has been applied to land acquisition costs.
5. We would suggest an increased level of developers' profit to reflect the risks involved in retail development.
6. There are no commercial appraisals or evidence as to how the CIL rates of £100 psm and £120 psm for convenience stores have been derivedand given the results of the sensitivity analysis it is clear that changes in values/costs could render schemes unviable and therefore we question whether a sufficient buffer has been allowed for in setting the CIL Charge
This representation has been prepared in the context of the consultation that Rother District Council have launched in respect of their Community Infrastructure Levy (CIL) Preliminary Draft Charging Schedule and Regulation 123 List (August 2014). We are instructed by W.M. Morrison Supermarkets
Plc. to make representations on their behalf.
Introduction
Aspinall Verdi Limited, Chartered Surveyors are property regeneration and development consultants with direct experience of advising both public and private sector clients with respect to development viability, S106 and planning gain matters. The firm has a thorough understanding of property markets,
valuation and development economics and delivery.
This representation has been prepared by Parm Dosanjh, BSc (Hons), DipTP, MSc, MRICS, MRTPI. Parm is a Director of AspinallVerdi and has over 15 years' experience in the planning and development consultancy sector. He is head of AspinallVerdi's London office and has advised on projects throughout
England. Parm also attended the Rother District Council's developer's workshop which was held on the 8th November 2013 and we subsequently submitted written comments to Peter Brett Associates (PBA) on the viability assumptions they had presented in respect of commercial developments. We note that a
couple of these comments/suggestions have been adopted; however, there a number which have been excluded; we address these in our response below.
This submission has been prepared with the support of Peacock & Smith town planning consultants to W.M. Morrison Plc.
For the purposes of these representations we have reviewed the following documents, prepared by or Rother District Council;
1. Community Infrastructure Levy - Economic Viability Assessment, Peter Brett Associate, Final Report July 2014
2. Community Infrastructure Levy - Preliminary Draft Charging Schedule and Regulation 123 List, Rother District Council, August 2014
3. Infrastructure Delivery Plan, Rother District Council, June 2014
General Comments
Prior to making specific comments in response to the consultation questions that have been raised we draw attention to the following:
1. Regulations and guidance for Local Authorities preparing their CIL Charging Schedules should be based on appropriate evidence. There is a lack of information/detail (e.g. the actual retail/commercial development appraisals are missing) provided in respect of the retail (and commercial) typologies making it difficult for us to understand how the CIL Charges have been derived, analysis all the assumptions (e.g. development timescales or contingency etc.) and
provide you with detailed comments. We strongly recommend that the development appraisals for the commercial typologies are made available for consultation.
2. The interrelationship of CIL and site specific S106 is critical to the commercial viability of development and regeneration projects such as foodstores. In many cases the foodstore is linked to a wider development scheme or masterplan involving other uses and infrastructure such as roads. Therefore the preparation and inclusion of infrastructure elements to the Regulation 123 List needs to be clearly defined and understood to avoid double counting. Typical 'site specific' S106/S278 costs that will be outwith the Regulation 123 List should be factored into the CIL Viability Modelling. We note that the PBA viability assessment refers to this issue; however, as mentioned in point 1 above we do not know what figures have actual been adopted in their viability models and whether these are sufficient/appropriate.
3. We note that a relatively significant amount of retail development is proposed within the plan and therefore, should the evidence base and viability work undertaken not support the level of CIL being proposed, then this would affect the delivery of the plan.
4. Request to be heard. Should any changes be made to the CIL Charging Schedule in relation to Use Class 'A' across the Authority boundary, then we would reserve the right to make representations and be heard.
Specific Comments
The following specific comments have been made referring to the paragraph numbers in the CIL: Viability Study Report.
Item (Paragraph Number)
Study Context & Viability (Para 2.1.1 to 2.1.4) -
We agree with the residual value approach adopted by PBA in their viability assessment and the references to the relationship with planning obligations and the need for those onsite (non S123 List) costs to be included within the appraisals. However, no information has been provided as what S106 assumptions have been adopted for the retail typologies and therefore we cannot comment as to whether these are appropriate or not.
Land Uses (Para 3.2.2 and Para 5.1.3) - We agree with utilising the available evidence as the basis for focussing the CIL study. We consider it appropriate to review recent patterns of development, and planning policy objectives to provide a broad indication of what may happen in the future. CIL after all is to be focussed on areas expecting development.
However, there appears to be no analyses or information provided of recent patterns of development, or the planning policy objectives relevant to convenience retailing, or changes in the foodstore market. In fact the study only refers to Large and Local Convenience Use (Para 5.1.3) and no floorspace figures are provided, therefore it is difficult to determine whether the proposed unit sizes for the convenience units are appropriate.
With regards to the large superstore typology we would expect this to be a
store of circa 5,000 sq m plus; given no commercial appraisals have been
provided we do not know what floorspace assumptions have been adopted.
Profit on Cost (Para 5.5.5) - We would suggest that the developers profit level for the retail foodstore option is increased to 25% on cost based on:
* Developer's site assembly risk;
* Holding costs and timescales to complete a development and secure returns can be very long;
* The complexity and timescales for developing significant mixed use development;
* Planning costs and risks (some of which could be abortive)
Build Costs (Para 5.1.6) - A build costs allowance of £1,265 psm for Superstores /Supermarkets has been allowed for; the costs have been derived from BCIS median. We have reviewed the latest BCIS build costs and for foodstore developments of between 1,000 and 7,000 sqm a build cost (median and rebased to the Rother area) of £1,524 psm; this equates to a percentage difference of circa 19% - which on a 5,000 sqm foodstore equates to an additional
£1,295,000 on the build cost alone; the other costs e.g. contingency., external and professionals fees which are linked to build costs would also increase; thus impacting on the surplus available for CIL. The same issue applies to the Local Convenience build costs, which is included at a figure of £1,100 psm compared to latest figures of £1,251 psm.
Given the viability study was only completed in July 2014, we would expect
the study to reflect the latest build costs figures.
An allowance of 10% has been included for externals; we would expect
this to be in the region of 15% for a large convenience store given the
significant investment into the provision of car parking and landscaping.
Finance (Para 5.1.10) - A finance rate of 7.5% is has been adopted; however, the appraisal summary for residential typology at Appendix B refers to a figure of 7% - which is the correct figure? Furthermore, reference is made to the fact that
the finance rate is applied to the total development costs; however, it is not clear where this includes land costs. A developer/operator would acquire the site, undertake design planning work and then construct the building. The holding costs of land therefore can themselves be critical.
Sales Costs (Para 5.1.11) - A marketing cost of 3% of GDV has been allowed for in the appraisals; within this figure we are assuming costs for an actual marketing campaign (circa 1%) and also sales agents and legal fees (2%). There doesn't
appear to be any letting agent or legal fees allowed for commercial uses; we would expect agency fees to be included at 10% of the first years rent and legal fees at 5% of the first years rents.
In addition, no allowance has been made for tenant inducements - we would expect a rent free period of at least 12 months to be allowed for within the appraisal.
Stamp Duty (Para 5.1.13) - Reference is made to Stamp Duty rates of between 0% and 4%; however, in reality the land costs associated with large convenience stores is likely to be in excess of £1m and therefore the variable rate of either 5% or more likely 7% (land value above £2m) should be adopted.
Land for Non- Residential Uses (para 5.1.14 to 5.1.17) - We note the use of £430,000 per hectare (£174,000 per acre) up to £800,000 per hectare (£324,000 per acre) for non-residential development as the baseline figures; these figures are based on employment use. However, it is not clear whether these figures have been adjusted for convenience retail uses; where the benchmark land value is more likely to be between £1.0 to £1.5m per acre. However no evidence has been provided to support the land value assumptions nor whether the appropriate adjustments have been made for convenience retail land values.
It is important to note that landowners are likely to "hold out" until they have
explored their potential returns fully, and may not sell the site if the proposed returns are below their expectations. In many cases landowners have not fully discounted the value of their land following the credit crunch and the land market correction is still taking place. This is particularly relevant for sites that have the potential for the delivery of convenience retail schemes. In the case of retail developments, landowners are likely to hold out for the highest value and are unlike to accept a reduction in their land value for CIL and therefore if values in the range referred to in para 5.1.16 have been adopted then these do not reflect market sentiment and need to be changed.
CIL Surplus & Proposed Rate (Tables 5.5,5.6,6.1 and Para 5.2.12) - The Tables shows the potential CIL Surplus for retail convenience developments ranging between £151 psm (Town Centre) to £158 psm for out of centre supermarket; these figures represent the maximum CIL surplus available. In paragraph 5.2.12 a CIL rate of £100 psm for town centre convenience and £120 psm for out of centre convenience is recommended and these are the rates that the local authority has put forward. There is no explanation as to how the figures are arrived at; for example the difference between the surpluses for town centre and out of centre convenience stores is only £8.00 psm; yet the difference in the
proposed CIL rate is £20.00psm; with the higher charged levied on the out of centre typology - no justification has been provided for these figures. Also, it is not clear whether any sensitivity analysis has been undertaken to arrive at these figures and therefore we question whether an 'Appropriate Balance' has been achieved.
CIL Guidance recommends that 'charging authority should directly sample
an appropriate range of types of sites across its area, in order to supplement existing data.' The guidance goes onto say that 'fine-grained sampling is also likely to be necessary where they wish to differentiate between categories or scales of intended use.' There appears to be no evidence provided of any sampling undertaken by the Council to support the proposed rates.
Given our comments on land values, build costs and other elements of the
development appraisals/evidence we consider that the Council has failed to achieve an 'Appropriate Balance' and that the proposed rates are set cannot be justified based on the evidence provided to date.
Appendix B - Assumptions Summary & Appendix C Sample Appraisal - The appraisal assumptions provided at Appendix B and the sample appraisal at Appendix C both relate to residential schemes, there does not appear to be a similar assumptions or appraisals provided for commercial schemes and therefore it is difficult for us to comment on the appropriateness of the proposed CIL Charge when we don't have all the information required to make an informed comment.
Appendix D - Sensitivity Analysis - The results of the sensitivity analysis illustrated in Figure D1 show that a 10% decrease in values would render convenience retail uses unviable; it is not clear as to whether the findings of this sensitivity analysis have been reflected in achieving the appropriate balance. Furthermore, only one variable has been tested and therefore build costs should also be factored into the sensitivity analysis in order to provide a more rounded view.
Summary and Conclusions
We are pleased to have been given this opportunity to comment on the Rother District Council CIL Preliminary Draft Charging Schedule. We would hope to be consulted further once the issues in this representation have been addressed.
The PBA viability study lacks detailed information on non-commercial uses making it difficult to provide a considered response. Further work and revisions are needed in order to reflect the observations above. We note the key elements to be reconsidered below:
1. We would recommend that the report is reviewed to be made clearer and more explicit. Assumptions and sources need to be cited and kept up to date;
2. Market evidence needs to be provided to support the assumptions used to develop the CIL rate.
3. The build cost assumptions which are approximately 19% cheaper than the BCIS benchmarks we have identified for supermarkets.
4. The finance rates set out in the report as 7.5% but have been included in the appraisal as 7%. Also it is not clear whether finance has been applied to land acquisition costs.
5. We would suggest an increased level of developers' profit to reflect the risks involved in retail development.
6. There are no commercial appraisals or evidence as to how the CIL rates of £100 psm and £120 psm for convenience stores have been derived and given the results of the sensitivity analysis it is clear that changes in values/costs could render schemes unviable and therefore we question whether a sufficient buffer has been allowed for in setting the CIL Charge.
Object
Community Infrastructure Levy (CIL) Preliminary Draft Charging Schedule and Regulation 123 List
Q9. Do you have any further comments on the PDCS?
Representation ID: 21718
Received: 23/09/2014
Respondent: Wm Morrison Supermarkets Plc
Agent: Peacock & Smith Ltd
CIL Viability Study - Finance (Para 5.1.10) - A finance rate of 7.5% is has been adopted; however, the appraisal summary for residential typology at Appendix B refers to a figure of 7% - which is the correct figure? Furthermore, reference is made to the fact that
the finance rate is applied to the total development costs; however, it is not clear where this includes land costs. A developer/operator would acquire the site, undertake design planning work and then construct the building. The holding costs of land therefore can themselves be critical.
Peacock and Smith have been instructed by our client, Wm Morrison Supermarkets Plc, to submit an objection to the proposed CIL rate of £100 or £120/sq. m. for Convenience Retail.
In our view, the draft CIL charge will put undue additional risk on the delivery of any such proposals and will be an unrealistic financial burden on new retail development. This, in turn, poses a significant threat to potential new investment and job creation in the local area at a time of economic recession and low levels of development activity. Our client is concerned that a balance has not been found between infrastructure funding requirements and viability and subsequently the suggested charge will have a significant adverse impact on the overall viability of future retail development in the district.
As part of this objection, Morrisons have also instructed Aspinall Verdi to review the CIL evidence base. Aspinall Verdi's comments are attached, which conclude that the PBA viability study lacks detailed information on non-commercial uses making it difficult to provide a considered response. Further work and revisions are needed in order to reflect the observations above. They conclude that the key elements to be reconsidered are:
1. We would recommend that the report is reviewed to be made clearer and more explicit. Assumptions and sources need to be cited and kept up to date;
2. Market evidence needs to be provided to support the assumptions used to develop the CIL rate.
3. The build cost assumptions which are approximately 19% cheaper than the BCIS benchmarks we have identified for supermarkets.
4. The finance rates set out in the report as 7.5% but have been included in the appraisal as 7%. Also it is not clear whether finance has been applied to land acquisition costs.
5. We would suggest an increased level of developers' profit to reflect the risks involved in retail development.
6. There are no commercial appraisals or evidence as to how the CIL rates of £100 psm and £120 psm for convenience stores have been derivedand given the results of the sensitivity analysis it is clear that changes in values/costs could render schemes unviable and therefore we question whether a sufficient buffer has been allowed for in setting the CIL Charge
This representation has been prepared in the context of the consultation that Rother District Council have launched in respect of their Community Infrastructure Levy (CIL) Preliminary Draft Charging Schedule and Regulation 123 List (August 2014). We are instructed by W.M. Morrison Supermarkets
Plc. to make representations on their behalf.
Introduction
Aspinall Verdi Limited, Chartered Surveyors are property regeneration and development consultants with direct experience of advising both public and private sector clients with respect to development viability, S106 and planning gain matters. The firm has a thorough understanding of property markets,
valuation and development economics and delivery.
This representation has been prepared by Parm Dosanjh, BSc (Hons), DipTP, MSc, MRICS, MRTPI. Parm is a Director of AspinallVerdi and has over 15 years' experience in the planning and development consultancy sector. He is head of AspinallVerdi's London office and has advised on projects throughout
England. Parm also attended the Rother District Council's developer's workshop which was held on the 8th November 2013 and we subsequently submitted written comments to Peter Brett Associates (PBA) on the viability assumptions they had presented in respect of commercial developments. We note that a
couple of these comments/suggestions have been adopted; however, there a number which have been excluded; we address these in our response below.
This submission has been prepared with the support of Peacock & Smith town planning consultants to W.M. Morrison Plc.
For the purposes of these representations we have reviewed the following documents, prepared by or Rother District Council;
1. Community Infrastructure Levy - Economic Viability Assessment, Peter Brett Associate, Final Report July 2014
2. Community Infrastructure Levy - Preliminary Draft Charging Schedule and Regulation 123 List, Rother District Council, August 2014
3. Infrastructure Delivery Plan, Rother District Council, June 2014
General Comments
Prior to making specific comments in response to the consultation questions that have been raised we draw attention to the following:
1. Regulations and guidance for Local Authorities preparing their CIL Charging Schedules should be based on appropriate evidence. There is a lack of information/detail (e.g. the actual retail/commercial development appraisals are missing) provided in respect of the retail (and commercial) typologies making it difficult for us to understand how the CIL Charges have been derived, analysis all the assumptions (e.g. development timescales or contingency etc.) and
provide you with detailed comments. We strongly recommend that the development appraisals for the commercial typologies are made available for consultation.
2. The interrelationship of CIL and site specific S106 is critical to the commercial viability of development and regeneration projects such as foodstores. In many cases the foodstore is linked to a wider development scheme or masterplan involving other uses and infrastructure such as roads. Therefore the preparation and inclusion of infrastructure elements to the Regulation 123 List needs to be clearly defined and understood to avoid double counting. Typical 'site specific' S106/S278 costs that will be outwith the Regulation 123 List should be factored into the CIL Viability Modelling. We note that the PBA viability assessment refers to this issue; however, as mentioned in point 1 above we do not know what figures have actual been adopted in their viability models and whether these are sufficient/appropriate.
3. We note that a relatively significant amount of retail development is proposed within the plan and therefore, should the evidence base and viability work undertaken not support the level of CIL being proposed, then this would affect the delivery of the plan.
4. Request to be heard. Should any changes be made to the CIL Charging Schedule in relation to Use Class 'A' across the Authority boundary, then we would reserve the right to make representations and be heard.
Specific Comments
The following specific comments have been made referring to the paragraph numbers in the CIL: Viability Study Report.
Item (Paragraph Number)
Study Context & Viability (Para 2.1.1 to 2.1.4) -
We agree with the residual value approach adopted by PBA in their viability assessment and the references to the relationship with planning obligations and the need for those onsite (non S123 List) costs to be included within the appraisals. However, no information has been provided as what S106 assumptions have been adopted for the retail typologies and therefore we cannot comment as to whether these are appropriate or not.
Land Uses (Para 3.2.2 and Para 5.1.3) - We agree with utilising the available evidence as the basis for focussing the CIL study. We consider it appropriate to review recent patterns of development, and planning policy objectives to provide a broad indication of what may happen in the future. CIL after all is to be focussed on areas expecting development.
However, there appears to be no analyses or information provided of recent patterns of development, or the planning policy objectives relevant to convenience retailing, or changes in the foodstore market. In fact the study only refers to Large and Local Convenience Use (Para 5.1.3) and no floorspace figures are provided, therefore it is difficult to determine whether the proposed unit sizes for the convenience units are appropriate.
With regards to the large superstore typology we would expect this to be a
store of circa 5,000 sq m plus; given no commercial appraisals have been
provided we do not know what floorspace assumptions have been adopted.
Profit on Cost (Para 5.5.5) - We would suggest that the developers profit level for the retail foodstore option is increased to 25% on cost based on:
* Developer's site assembly risk;
* Holding costs and timescales to complete a development and secure returns can be very long;
* The complexity and timescales for developing significant mixed use development;
* Planning costs and risks (some of which could be abortive)
Build Costs (Para 5.1.6) - A build costs allowance of £1,265 psm for Superstores /Supermarkets has been allowed for; the costs have been derived from BCIS median. We have reviewed the latest BCIS build costs and for foodstore developments of between 1,000 and 7,000 sqm a build cost (median and rebased to the Rother area) of £1,524 psm; this equates to a percentage difference of circa 19% - which on a 5,000 sqm foodstore equates to an additional
£1,295,000 on the build cost alone; the other costs e.g. contingency., external and professionals fees which are linked to build costs would also increase; thus impacting on the surplus available for CIL. The same issue applies to the Local Convenience build costs, which is included at a figure of £1,100 psm compared to latest figures of £1,251 psm.
Given the viability study was only completed in July 2014, we would expect
the study to reflect the latest build costs figures.
An allowance of 10% has been included for externals; we would expect
this to be in the region of 15% for a large convenience store given the
significant investment into the provision of car parking and landscaping.
Finance (Para 5.1.10) - A finance rate of 7.5% is has been adopted; however, the appraisal summary for residential typology at Appendix B refers to a figure of 7% - which is the correct figure? Furthermore, reference is made to the fact that
the finance rate is applied to the total development costs; however, it is not clear where this includes land costs. A developer/operator would acquire the site, undertake design planning work and then construct the building. The holding costs of land therefore can themselves be critical.
Sales Costs (Para 5.1.11) - A marketing cost of 3% of GDV has been allowed for in the appraisals; within this figure we are assuming costs for an actual marketing campaign (circa 1%) and also sales agents and legal fees (2%). There doesn't
appear to be any letting agent or legal fees allowed for commercial uses; we would expect agency fees to be included at 10% of the first years rent and legal fees at 5% of the first years rents.
In addition, no allowance has been made for tenant inducements - we would expect a rent free period of at least 12 months to be allowed for within the appraisal.
Stamp Duty (Para 5.1.13) - Reference is made to Stamp Duty rates of between 0% and 4%; however, in reality the land costs associated with large convenience stores is likely to be in excess of £1m and therefore the variable rate of either 5% or more likely 7% (land value above £2m) should be adopted.
Land for Non- Residential Uses (para 5.1.14 to 5.1.17) - We note the use of £430,000 per hectare (£174,000 per acre) up to £800,000 per hectare (£324,000 per acre) for non-residential development as the baseline figures; these figures are based on employment use. However, it is not clear whether these figures have been adjusted for convenience retail uses; where the benchmark land value is more likely to be between £1.0 to £1.5m per acre. However no evidence has been provided to support the land value assumptions nor whether the appropriate adjustments have been made for convenience retail land values.
It is important to note that landowners are likely to "hold out" until they have
explored their potential returns fully, and may not sell the site if the proposed returns are below their expectations. In many cases landowners have not fully discounted the value of their land following the credit crunch and the land market correction is still taking place. This is particularly relevant for sites that have the potential for the delivery of convenience retail schemes. In the case of retail developments, landowners are likely to hold out for the highest value and are unlike to accept a reduction in their land value for CIL and therefore if values in the range referred to in para 5.1.16 have been adopted then these do not reflect market sentiment and need to be changed.
CIL Surplus & Proposed Rate (Tables 5.5,5.6,6.1 and Para 5.2.12) - The Tables shows the potential CIL Surplus for retail convenience developments ranging between £151 psm (Town Centre) to £158 psm for out of centre supermarket; these figures represent the maximum CIL surplus available. In paragraph 5.2.12 a CIL rate of £100 psm for town centre convenience and £120 psm for out of centre convenience is recommended and these are the rates that the local authority has put forward. There is no explanation as to how the figures are arrived at; for example the difference between the surpluses for town centre and out of centre convenience stores is only £8.00 psm; yet the difference in the
proposed CIL rate is £20.00psm; with the higher charged levied on the out of centre typology - no justification has been provided for these figures. Also, it is not clear whether any sensitivity analysis has been undertaken to arrive at these figures and therefore we question whether an 'Appropriate Balance' has been achieved.
CIL Guidance recommends that 'charging authority should directly sample
an appropriate range of types of sites across its area, in order to supplement existing data.' The guidance goes onto say that 'fine-grained sampling is also likely to be necessary where they wish to differentiate between categories or scales of intended use.' There appears to be no evidence provided of any sampling undertaken by the Council to support the proposed rates.
Given our comments on land values, build costs and other elements of the
development appraisals/evidence we consider that the Council has failed to achieve an 'Appropriate Balance' and that the proposed rates are set cannot be justified based on the evidence provided to date.
Appendix B - Assumptions Summary & Appendix C Sample Appraisal - The appraisal assumptions provided at Appendix B and the sample appraisal at Appendix C both relate to residential schemes, there does not appear to be a similar assumptions or appraisals provided for commercial schemes and therefore it is difficult for us to comment on the appropriateness of the proposed CIL Charge when we don't have all the information required to make an informed comment.
Appendix D - Sensitivity Analysis - The results of the sensitivity analysis illustrated in Figure D1 show that a 10% decrease in values would render convenience retail uses unviable; it is not clear as to whether the findings of this sensitivity analysis have been reflected in achieving the appropriate balance. Furthermore, only one variable has been tested and therefore build costs should also be factored into the sensitivity analysis in order to provide a more rounded view.
Summary and Conclusions
We are pleased to have been given this opportunity to comment on the Rother District Council CIL Preliminary Draft Charging Schedule. We would hope to be consulted further once the issues in this representation have been addressed.
The PBA viability study lacks detailed information on non-commercial uses making it difficult to provide a considered response. Further work and revisions are needed in order to reflect the observations above. We note the key elements to be reconsidered below:
1. We would recommend that the report is reviewed to be made clearer and more explicit. Assumptions and sources need to be cited and kept up to date;
2. Market evidence needs to be provided to support the assumptions used to develop the CIL rate.
3. The build cost assumptions which are approximately 19% cheaper than the BCIS benchmarks we have identified for supermarkets.
4. The finance rates set out in the report as 7.5% but have been included in the appraisal as 7%. Also it is not clear whether finance has been applied to land acquisition costs.
5. We would suggest an increased level of developers' profit to reflect the risks involved in retail development.
6. There are no commercial appraisals or evidence as to how the CIL rates of £100 psm and £120 psm for convenience stores have been derived and given the results of the sensitivity analysis it is clear that changes in values/costs could render schemes unviable and therefore we question whether a sufficient buffer has been allowed for in setting the CIL Charge.
Object
Community Infrastructure Levy (CIL) Preliminary Draft Charging Schedule and Regulation 123 List
Q9. Do you have any further comments on the PDCS?
Representation ID: 21719
Received: 23/09/2014
Respondent: Wm Morrison Supermarkets Plc
Agent: Peacock & Smith Ltd
CIL Viability Study - Sales Costs (Para 5.1.11) - A marketing cost of 3% of GDV has been allowed for; within this figure we are assuming costs for a marketing campaign (circa 1%) and sales agents/legal fees (2%). There doesn't
appear to be letting agent/legal fees allowed for; we would expect agency fees to be included at 10% of the first years rent and legal fees at 5% of the first years rents.
In addition, no allowance has been made for tenant inducements - we would expect a rent free period of at least 12 months within the appraisal.
Peacock and Smith have been instructed by our client, Wm Morrison Supermarkets Plc, to submit an objection to the proposed CIL rate of £100 or £120/sq. m. for Convenience Retail.
In our view, the draft CIL charge will put undue additional risk on the delivery of any such proposals and will be an unrealistic financial burden on new retail development. This, in turn, poses a significant threat to potential new investment and job creation in the local area at a time of economic recession and low levels of development activity. Our client is concerned that a balance has not been found between infrastructure funding requirements and viability and subsequently the suggested charge will have a significant adverse impact on the overall viability of future retail development in the district.
As part of this objection, Morrisons have also instructed Aspinall Verdi to review the CIL evidence base. Aspinall Verdi's comments are attached, which conclude that the PBA viability study lacks detailed information on non-commercial uses making it difficult to provide a considered response. Further work and revisions are needed in order to reflect the observations above. They conclude that the key elements to be reconsidered are:
1. We would recommend that the report is reviewed to be made clearer and more explicit. Assumptions and sources need to be cited and kept up to date;
2. Market evidence needs to be provided to support the assumptions used to develop the CIL rate.
3. The build cost assumptions which are approximately 19% cheaper than the BCIS benchmarks we have identified for supermarkets.
4. The finance rates set out in the report as 7.5% but have been included in the appraisal as 7%. Also it is not clear whether finance has been applied to land acquisition costs.
5. We would suggest an increased level of developers' profit to reflect the risks involved in retail development.
6. There are no commercial appraisals or evidence as to how the CIL rates of £100 psm and £120 psm for convenience stores have been derivedand given the results of the sensitivity analysis it is clear that changes in values/costs could render schemes unviable and therefore we question whether a sufficient buffer has been allowed for in setting the CIL Charge
This representation has been prepared in the context of the consultation that Rother District Council have launched in respect of their Community Infrastructure Levy (CIL) Preliminary Draft Charging Schedule and Regulation 123 List (August 2014). We are instructed by W.M. Morrison Supermarkets
Plc. to make representations on their behalf.
Introduction
Aspinall Verdi Limited, Chartered Surveyors are property regeneration and development consultants with direct experience of advising both public and private sector clients with respect to development viability, S106 and planning gain matters. The firm has a thorough understanding of property markets,
valuation and development economics and delivery.
This representation has been prepared by Parm Dosanjh, BSc (Hons), DipTP, MSc, MRICS, MRTPI. Parm is a Director of AspinallVerdi and has over 15 years' experience in the planning and development consultancy sector. He is head of AspinallVerdi's London office and has advised on projects throughout
England. Parm also attended the Rother District Council's developer's workshop which was held on the 8th November 2013 and we subsequently submitted written comments to Peter Brett Associates (PBA) on the viability assumptions they had presented in respect of commercial developments. We note that a
couple of these comments/suggestions have been adopted; however, there a number which have been excluded; we address these in our response below.
This submission has been prepared with the support of Peacock & Smith town planning consultants to W.M. Morrison Plc.
For the purposes of these representations we have reviewed the following documents, prepared by or Rother District Council;
1. Community Infrastructure Levy - Economic Viability Assessment, Peter Brett Associate, Final Report July 2014
2. Community Infrastructure Levy - Preliminary Draft Charging Schedule and Regulation 123 List, Rother District Council, August 2014
3. Infrastructure Delivery Plan, Rother District Council, June 2014
General Comments
Prior to making specific comments in response to the consultation questions that have been raised we draw attention to the following:
1. Regulations and guidance for Local Authorities preparing their CIL Charging Schedules should be based on appropriate evidence. There is a lack of information/detail (e.g. the actual retail/commercial development appraisals are missing) provided in respect of the retail (and commercial) typologies making it difficult for us to understand how the CIL Charges have been derived, analysis all the assumptions (e.g. development timescales or contingency etc.) and
provide you with detailed comments. We strongly recommend that the development appraisals for the commercial typologies are made available for consultation.
2. The interrelationship of CIL and site specific S106 is critical to the commercial viability of development and regeneration projects such as foodstores. In many cases the foodstore is linked to a wider development scheme or masterplan involving other uses and infrastructure such as roads. Therefore the preparation and inclusion of infrastructure elements to the Regulation 123 List needs to be clearly defined and understood to avoid double counting. Typical 'site specific' S106/S278 costs that will be outwith the Regulation 123 List should be factored into the CIL Viability Modelling. We note that the PBA viability assessment refers to this issue; however, as mentioned in point 1 above we do not know what figures have actual been adopted in their viability models and whether these are sufficient/appropriate.
3. We note that a relatively significant amount of retail development is proposed within the plan and therefore, should the evidence base and viability work undertaken not support the level of CIL being proposed, then this would affect the delivery of the plan.
4. Request to be heard. Should any changes be made to the CIL Charging Schedule in relation to Use Class 'A' across the Authority boundary, then we would reserve the right to make representations and be heard.
Specific Comments
The following specific comments have been made referring to the paragraph numbers in the CIL: Viability Study Report.
Item (Paragraph Number)
Study Context & Viability (Para 2.1.1 to 2.1.4) -
We agree with the residual value approach adopted by PBA in their viability assessment and the references to the relationship with planning obligations and the need for those onsite (non S123 List) costs to be included within the appraisals. However, no information has been provided as what S106 assumptions have been adopted for the retail typologies and therefore we cannot comment as to whether these are appropriate or not.
Land Uses (Para 3.2.2 and Para 5.1.3) - We agree with utilising the available evidence as the basis for focussing the CIL study. We consider it appropriate to review recent patterns of development, and planning policy objectives to provide a broad indication of what may happen in the future. CIL after all is to be focussed on areas expecting development.
However, there appears to be no analyses or information provided of recent patterns of development, or the planning policy objectives relevant to convenience retailing, or changes in the foodstore market. In fact the study only refers to Large and Local Convenience Use (Para 5.1.3) and no floorspace figures are provided, therefore it is difficult to determine whether the proposed unit sizes for the convenience units are appropriate.
With regards to the large superstore typology we would expect this to be a
store of circa 5,000 sq m plus; given no commercial appraisals have been
provided we do not know what floorspace assumptions have been adopted.
Profit on Cost (Para 5.5.5) - We would suggest that the developers profit level for the retail foodstore option is increased to 25% on cost based on:
* Developer's site assembly risk;
* Holding costs and timescales to complete a development and secure returns can be very long;
* The complexity and timescales for developing significant mixed use development;
* Planning costs and risks (some of which could be abortive)
Build Costs (Para 5.1.6) - A build costs allowance of £1,265 psm for Superstores /Supermarkets has been allowed for; the costs have been derived from BCIS median. We have reviewed the latest BCIS build costs and for foodstore developments of between 1,000 and 7,000 sqm a build cost (median and rebased to the Rother area) of £1,524 psm; this equates to a percentage difference of circa 19% - which on a 5,000 sqm foodstore equates to an additional
£1,295,000 on the build cost alone; the other costs e.g. contingency., external and professionals fees which are linked to build costs would also increase; thus impacting on the surplus available for CIL. The same issue applies to the Local Convenience build costs, which is included at a figure of £1,100 psm compared to latest figures of £1,251 psm.
Given the viability study was only completed in July 2014, we would expect
the study to reflect the latest build costs figures.
An allowance of 10% has been included for externals; we would expect
this to be in the region of 15% for a large convenience store given the
significant investment into the provision of car parking and landscaping.
Finance (Para 5.1.10) - A finance rate of 7.5% is has been adopted; however, the appraisal summary for residential typology at Appendix B refers to a figure of 7% - which is the correct figure? Furthermore, reference is made to the fact that
the finance rate is applied to the total development costs; however, it is not clear where this includes land costs. A developer/operator would acquire the site, undertake design planning work and then construct the building. The holding costs of land therefore can themselves be critical.
Sales Costs (Para 5.1.11) - A marketing cost of 3% of GDV has been allowed for in the appraisals; within this figure we are assuming costs for an actual marketing campaign (circa 1%) and also sales agents and legal fees (2%). There doesn't
appear to be any letting agent or legal fees allowed for commercial uses; we would expect agency fees to be included at 10% of the first years rent and legal fees at 5% of the first years rents.
In addition, no allowance has been made for tenant inducements - we would expect a rent free period of at least 12 months to be allowed for within the appraisal.
Stamp Duty (Para 5.1.13) - Reference is made to Stamp Duty rates of between 0% and 4%; however, in reality the land costs associated with large convenience stores is likely to be in excess of £1m and therefore the variable rate of either 5% or more likely 7% (land value above £2m) should be adopted.
Land for Non- Residential Uses (para 5.1.14 to 5.1.17) - We note the use of £430,000 per hectare (£174,000 per acre) up to £800,000 per hectare (£324,000 per acre) for non-residential development as the baseline figures; these figures are based on employment use. However, it is not clear whether these figures have been adjusted for convenience retail uses; where the benchmark land value is more likely to be between £1.0 to £1.5m per acre. However no evidence has been provided to support the land value assumptions nor whether the appropriate adjustments have been made for convenience retail land values.
It is important to note that landowners are likely to "hold out" until they have
explored their potential returns fully, and may not sell the site if the proposed returns are below their expectations. In many cases landowners have not fully discounted the value of their land following the credit crunch and the land market correction is still taking place. This is particularly relevant for sites that have the potential for the delivery of convenience retail schemes. In the case of retail developments, landowners are likely to hold out for the highest value and are unlike to accept a reduction in their land value for CIL and therefore if values in the range referred to in para 5.1.16 have been adopted then these do not reflect market sentiment and need to be changed.
CIL Surplus & Proposed Rate (Tables 5.5,5.6,6.1 and Para 5.2.12) - The Tables shows the potential CIL Surplus for retail convenience developments ranging between £151 psm (Town Centre) to £158 psm for out of centre supermarket; these figures represent the maximum CIL surplus available. In paragraph 5.2.12 a CIL rate of £100 psm for town centre convenience and £120 psm for out of centre convenience is recommended and these are the rates that the local authority has put forward. There is no explanation as to how the figures are arrived at; for example the difference between the surpluses for town centre and out of centre convenience stores is only £8.00 psm; yet the difference in the
proposed CIL rate is £20.00psm; with the higher charged levied on the out of centre typology - no justification has been provided for these figures. Also, it is not clear whether any sensitivity analysis has been undertaken to arrive at these figures and therefore we question whether an 'Appropriate Balance' has been achieved.
CIL Guidance recommends that 'charging authority should directly sample
an appropriate range of types of sites across its area, in order to supplement existing data.' The guidance goes onto say that 'fine-grained sampling is also likely to be necessary where they wish to differentiate between categories or scales of intended use.' There appears to be no evidence provided of any sampling undertaken by the Council to support the proposed rates.
Given our comments on land values, build costs and other elements of the
development appraisals/evidence we consider that the Council has failed to achieve an 'Appropriate Balance' and that the proposed rates are set cannot be justified based on the evidence provided to date.
Appendix B - Assumptions Summary & Appendix C Sample Appraisal - The appraisal assumptions provided at Appendix B and the sample appraisal at Appendix C both relate to residential schemes, there does not appear to be a similar assumptions or appraisals provided for commercial schemes and therefore it is difficult for us to comment on the appropriateness of the proposed CIL Charge when we don't have all the information required to make an informed comment.
Appendix D - Sensitivity Analysis - The results of the sensitivity analysis illustrated in Figure D1 show that a 10% decrease in values would render convenience retail uses unviable; it is not clear as to whether the findings of this sensitivity analysis have been reflected in achieving the appropriate balance. Furthermore, only one variable has been tested and therefore build costs should also be factored into the sensitivity analysis in order to provide a more rounded view.
Summary and Conclusions
We are pleased to have been given this opportunity to comment on the Rother District Council CIL Preliminary Draft Charging Schedule. We would hope to be consulted further once the issues in this representation have been addressed.
The PBA viability study lacks detailed information on non-commercial uses making it difficult to provide a considered response. Further work and revisions are needed in order to reflect the observations above. We note the key elements to be reconsidered below:
1. We would recommend that the report is reviewed to be made clearer and more explicit. Assumptions and sources need to be cited and kept up to date;
2. Market evidence needs to be provided to support the assumptions used to develop the CIL rate.
3. The build cost assumptions which are approximately 19% cheaper than the BCIS benchmarks we have identified for supermarkets.
4. The finance rates set out in the report as 7.5% but have been included in the appraisal as 7%. Also it is not clear whether finance has been applied to land acquisition costs.
5. We would suggest an increased level of developers' profit to reflect the risks involved in retail development.
6. There are no commercial appraisals or evidence as to how the CIL rates of £100 psm and £120 psm for convenience stores have been derived and given the results of the sensitivity analysis it is clear that changes in values/costs could render schemes unviable and therefore we question whether a sufficient buffer has been allowed for in setting the CIL Charge.
Object
Community Infrastructure Levy (CIL) Preliminary Draft Charging Schedule and Regulation 123 List
Q9. Do you have any further comments on the PDCS?
Representation ID: 21720
Received: 23/09/2014
Respondent: Wm Morrison Supermarkets Plc
Agent: Peacock & Smith Ltd
CIL Viability Study - Stamp Duty (Para 5.1.13) - Reference is made to Stamp Duty rates of between 0% and 4%; however, in reality the land costs associated with large convenience stores is likely to be in excess of £1m and therefore the variable rate of either 5% or more likely 7% (land value above £2m) should be adopted.
Peacock and Smith have been instructed by our client, Wm Morrison Supermarkets Plc, to submit an objection to the proposed CIL rate of £100 or £120/sq. m. for Convenience Retail.
In our view, the draft CIL charge will put undue additional risk on the delivery of any such proposals and will be an unrealistic financial burden on new retail development. This, in turn, poses a significant threat to potential new investment and job creation in the local area at a time of economic recession and low levels of development activity. Our client is concerned that a balance has not been found between infrastructure funding requirements and viability and subsequently the suggested charge will have a significant adverse impact on the overall viability of future retail development in the district.
As part of this objection, Morrisons have also instructed Aspinall Verdi to review the CIL evidence base. Aspinall Verdi's comments are attached, which conclude that the PBA viability study lacks detailed information on non-commercial uses making it difficult to provide a considered response. Further work and revisions are needed in order to reflect the observations above. They conclude that the key elements to be reconsidered are:
1. We would recommend that the report is reviewed to be made clearer and more explicit. Assumptions and sources need to be cited and kept up to date;
2. Market evidence needs to be provided to support the assumptions used to develop the CIL rate.
3. The build cost assumptions which are approximately 19% cheaper than the BCIS benchmarks we have identified for supermarkets.
4. The finance rates set out in the report as 7.5% but have been included in the appraisal as 7%. Also it is not clear whether finance has been applied to land acquisition costs.
5. We would suggest an increased level of developers' profit to reflect the risks involved in retail development.
6. There are no commercial appraisals or evidence as to how the CIL rates of £100 psm and £120 psm for convenience stores have been derivedand given the results of the sensitivity analysis it is clear that changes in values/costs could render schemes unviable and therefore we question whether a sufficient buffer has been allowed for in setting the CIL Charge
This representation has been prepared in the context of the consultation that Rother District Council have launched in respect of their Community Infrastructure Levy (CIL) Preliminary Draft Charging Schedule and Regulation 123 List (August 2014). We are instructed by W.M. Morrison Supermarkets
Plc. to make representations on their behalf.
Introduction
Aspinall Verdi Limited, Chartered Surveyors are property regeneration and development consultants with direct experience of advising both public and private sector clients with respect to development viability, S106 and planning gain matters. The firm has a thorough understanding of property markets,
valuation and development economics and delivery.
This representation has been prepared by Parm Dosanjh, BSc (Hons), DipTP, MSc, MRICS, MRTPI. Parm is a Director of AspinallVerdi and has over 15 years' experience in the planning and development consultancy sector. He is head of AspinallVerdi's London office and has advised on projects throughout
England. Parm also attended the Rother District Council's developer's workshop which was held on the 8th November 2013 and we subsequently submitted written comments to Peter Brett Associates (PBA) on the viability assumptions they had presented in respect of commercial developments. We note that a
couple of these comments/suggestions have been adopted; however, there a number which have been excluded; we address these in our response below.
This submission has been prepared with the support of Peacock & Smith town planning consultants to W.M. Morrison Plc.
For the purposes of these representations we have reviewed the following documents, prepared by or Rother District Council;
1. Community Infrastructure Levy - Economic Viability Assessment, Peter Brett Associate, Final Report July 2014
2. Community Infrastructure Levy - Preliminary Draft Charging Schedule and Regulation 123 List, Rother District Council, August 2014
3. Infrastructure Delivery Plan, Rother District Council, June 2014
General Comments
Prior to making specific comments in response to the consultation questions that have been raised we draw attention to the following:
1. Regulations and guidance for Local Authorities preparing their CIL Charging Schedules should be based on appropriate evidence. There is a lack of information/detail (e.g. the actual retail/commercial development appraisals are missing) provided in respect of the retail (and commercial) typologies making it difficult for us to understand how the CIL Charges have been derived, analysis all the assumptions (e.g. development timescales or contingency etc.) and
provide you with detailed comments. We strongly recommend that the development appraisals for the commercial typologies are made available for consultation.
2. The interrelationship of CIL and site specific S106 is critical to the commercial viability of development and regeneration projects such as foodstores. In many cases the foodstore is linked to a wider development scheme or masterplan involving other uses and infrastructure such as roads. Therefore the preparation and inclusion of infrastructure elements to the Regulation 123 List needs to be clearly defined and understood to avoid double counting. Typical 'site specific' S106/S278 costs that will be outwith the Regulation 123 List should be factored into the CIL Viability Modelling. We note that the PBA viability assessment refers to this issue; however, as mentioned in point 1 above we do not know what figures have actual been adopted in their viability models and whether these are sufficient/appropriate.
3. We note that a relatively significant amount of retail development is proposed within the plan and therefore, should the evidence base and viability work undertaken not support the level of CIL being proposed, then this would affect the delivery of the plan.
4. Request to be heard. Should any changes be made to the CIL Charging Schedule in relation to Use Class 'A' across the Authority boundary, then we would reserve the right to make representations and be heard.
Specific Comments
The following specific comments have been made referring to the paragraph numbers in the CIL: Viability Study Report.
Item (Paragraph Number)
Study Context & Viability (Para 2.1.1 to 2.1.4) -
We agree with the residual value approach adopted by PBA in their viability assessment and the references to the relationship with planning obligations and the need for those onsite (non S123 List) costs to be included within the appraisals. However, no information has been provided as what S106 assumptions have been adopted for the retail typologies and therefore we cannot comment as to whether these are appropriate or not.
Land Uses (Para 3.2.2 and Para 5.1.3) - We agree with utilising the available evidence as the basis for focussing the CIL study. We consider it appropriate to review recent patterns of development, and planning policy objectives to provide a broad indication of what may happen in the future. CIL after all is to be focussed on areas expecting development.
However, there appears to be no analyses or information provided of recent patterns of development, or the planning policy objectives relevant to convenience retailing, or changes in the foodstore market. In fact the study only refers to Large and Local Convenience Use (Para 5.1.3) and no floorspace figures are provided, therefore it is difficult to determine whether the proposed unit sizes for the convenience units are appropriate.
With regards to the large superstore typology we would expect this to be a
store of circa 5,000 sq m plus; given no commercial appraisals have been
provided we do not know what floorspace assumptions have been adopted.
Profit on Cost (Para 5.5.5) - We would suggest that the developers profit level for the retail foodstore option is increased to 25% on cost based on:
* Developer's site assembly risk;
* Holding costs and timescales to complete a development and secure returns can be very long;
* The complexity and timescales for developing significant mixed use development;
* Planning costs and risks (some of which could be abortive)
Build Costs (Para 5.1.6) - A build costs allowance of £1,265 psm for Superstores /Supermarkets has been allowed for; the costs have been derived from BCIS median. We have reviewed the latest BCIS build costs and for foodstore developments of between 1,000 and 7,000 sqm a build cost (median and rebased to the Rother area) of £1,524 psm; this equates to a percentage difference of circa 19% - which on a 5,000 sqm foodstore equates to an additional
£1,295,000 on the build cost alone; the other costs e.g. contingency., external and professionals fees which are linked to build costs would also increase; thus impacting on the surplus available for CIL. The same issue applies to the Local Convenience build costs, which is included at a figure of £1,100 psm compared to latest figures of £1,251 psm.
Given the viability study was only completed in July 2014, we would expect
the study to reflect the latest build costs figures.
An allowance of 10% has been included for externals; we would expect
this to be in the region of 15% for a large convenience store given the
significant investment into the provision of car parking and landscaping.
Finance (Para 5.1.10) - A finance rate of 7.5% is has been adopted; however, the appraisal summary for residential typology at Appendix B refers to a figure of 7% - which is the correct figure? Furthermore, reference is made to the fact that
the finance rate is applied to the total development costs; however, it is not clear where this includes land costs. A developer/operator would acquire the site, undertake design planning work and then construct the building. The holding costs of land therefore can themselves be critical.
Sales Costs (Para 5.1.11) - A marketing cost of 3% of GDV has been allowed for in the appraisals; within this figure we are assuming costs for an actual marketing campaign (circa 1%) and also sales agents and legal fees (2%). There doesn't
appear to be any letting agent or legal fees allowed for commercial uses; we would expect agency fees to be included at 10% of the first years rent and legal fees at 5% of the first years rents.
In addition, no allowance has been made for tenant inducements - we would expect a rent free period of at least 12 months to be allowed for within the appraisal.
Stamp Duty (Para 5.1.13) - Reference is made to Stamp Duty rates of between 0% and 4%; however, in reality the land costs associated with large convenience stores is likely to be in excess of £1m and therefore the variable rate of either 5% or more likely 7% (land value above £2m) should be adopted.
Land for Non- Residential Uses (para 5.1.14 to 5.1.17) - We note the use of £430,000 per hectare (£174,000 per acre) up to £800,000 per hectare (£324,000 per acre) for non-residential development as the baseline figures; these figures are based on employment use. However, it is not clear whether these figures have been adjusted for convenience retail uses; where the benchmark land value is more likely to be between £1.0 to £1.5m per acre. However no evidence has been provided to support the land value assumptions nor whether the appropriate adjustments have been made for convenience retail land values.
It is important to note that landowners are likely to "hold out" until they have
explored their potential returns fully, and may not sell the site if the proposed returns are below their expectations. In many cases landowners have not fully discounted the value of their land following the credit crunch and the land market correction is still taking place. This is particularly relevant for sites that have the potential for the delivery of convenience retail schemes. In the case of retail developments, landowners are likely to hold out for the highest value and are unlike to accept a reduction in their land value for CIL and therefore if values in the range referred to in para 5.1.16 have been adopted then these do not reflect market sentiment and need to be changed.
CIL Surplus & Proposed Rate (Tables 5.5,5.6,6.1 and Para 5.2.12) - The Tables shows the potential CIL Surplus for retail convenience developments ranging between £151 psm (Town Centre) to £158 psm for out of centre supermarket; these figures represent the maximum CIL surplus available. In paragraph 5.2.12 a CIL rate of £100 psm for town centre convenience and £120 psm for out of centre convenience is recommended and these are the rates that the local authority has put forward. There is no explanation as to how the figures are arrived at; for example the difference between the surpluses for town centre and out of centre convenience stores is only £8.00 psm; yet the difference in the
proposed CIL rate is £20.00psm; with the higher charged levied on the out of centre typology - no justification has been provided for these figures. Also, it is not clear whether any sensitivity analysis has been undertaken to arrive at these figures and therefore we question whether an 'Appropriate Balance' has been achieved.
CIL Guidance recommends that 'charging authority should directly sample
an appropriate range of types of sites across its area, in order to supplement existing data.' The guidance goes onto say that 'fine-grained sampling is also likely to be necessary where they wish to differentiate between categories or scales of intended use.' There appears to be no evidence provided of any sampling undertaken by the Council to support the proposed rates.
Given our comments on land values, build costs and other elements of the
development appraisals/evidence we consider that the Council has failed to achieve an 'Appropriate Balance' and that the proposed rates are set cannot be justified based on the evidence provided to date.
Appendix B - Assumptions Summary & Appendix C Sample Appraisal - The appraisal assumptions provided at Appendix B and the sample appraisal at Appendix C both relate to residential schemes, there does not appear to be a similar assumptions or appraisals provided for commercial schemes and therefore it is difficult for us to comment on the appropriateness of the proposed CIL Charge when we don't have all the information required to make an informed comment.
Appendix D - Sensitivity Analysis - The results of the sensitivity analysis illustrated in Figure D1 show that a 10% decrease in values would render convenience retail uses unviable; it is not clear as to whether the findings of this sensitivity analysis have been reflected in achieving the appropriate balance. Furthermore, only one variable has been tested and therefore build costs should also be factored into the sensitivity analysis in order to provide a more rounded view.
Summary and Conclusions
We are pleased to have been given this opportunity to comment on the Rother District Council CIL Preliminary Draft Charging Schedule. We would hope to be consulted further once the issues in this representation have been addressed.
The PBA viability study lacks detailed information on non-commercial uses making it difficult to provide a considered response. Further work and revisions are needed in order to reflect the observations above. We note the key elements to be reconsidered below:
1. We would recommend that the report is reviewed to be made clearer and more explicit. Assumptions and sources need to be cited and kept up to date;
2. Market evidence needs to be provided to support the assumptions used to develop the CIL rate.
3. The build cost assumptions which are approximately 19% cheaper than the BCIS benchmarks we have identified for supermarkets.
4. The finance rates set out in the report as 7.5% but have been included in the appraisal as 7%. Also it is not clear whether finance has been applied to land acquisition costs.
5. We would suggest an increased level of developers' profit to reflect the risks involved in retail development.
6. There are no commercial appraisals or evidence as to how the CIL rates of £100 psm and £120 psm for convenience stores have been derived and given the results of the sensitivity analysis it is clear that changes in values/costs could render schemes unviable and therefore we question whether a sufficient buffer has been allowed for in setting the CIL Charge.
