Development and Planning Report I Feasibility Study for a Mix – Used Development in London by MariStella Arifi

Development and Planning Report Feasibility Study for a Mix â&#x20AC;&#x201C; Used Development in London

Maristella Arifi

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Summary The purpose of this report is to identify a site and draw up a development proposal aiming to investigate its residual site value. This is a development and planning report to deliver an appraisal for a mix-used development with 15 storeys for this site. The existing land currently comprises a single retail unit which occupied by B&Q. The proposal development comprises of 4,800 sq.M of 8 retail units on groundfloor and 4,400 sq. M of office space in the first and second floor. In addition, including 348 residential units measuring 27,240 sq. M in total arranged over 12 storeys. For coming up with the best decision to develop the specific site researched and analysed the site, the size, the land features, the location and the surrounding area. Moreover, take into account the legislation, the policy, the planning and market aspects. Subsequently calculated an outline residual valuation to arrive at a figure that recommends being paid for the site. For the most applicable use on the site researched reference to market comparable and other data sources. Therefore, it is presented the excessive market comparable analysis for the retail space, offices and residential schemes. The comparable analysis is supported by proof and all prices and rates have been adjusted to the subject land. Subsequently calculated an outline residual valuation to arrive at a figure that recommends being paid for the site. Furthermore, the report includes a development cash flow for the proposed development based on the land value after residual valuation for the period from the agreement of the site until the final sale and the completion of the building. Moreover, in this report, it is calculated the ground rent for the commercial schemes for the site to be used as a base for identifying a basis for partnership opportunities. In addition, this report provides an adequate sensitive analysis of proposals and assesses these results and risks on the proposal development. Finally, the current report examines the possibilities for institutional funding of the commercial portions of the proposed development and analyses the associated issues.

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Table of contents Summary................................................................................................................................................ 2 List of Figures ........................................................................................................................................ 6 List of Tables ......................................................................................................................................... 6 1. Introduction ....................................................................................................................................... 8 2. Locality ............................................................................................................................................ 10 2.1 Description of Location ............................................................................................................ 10 2.2 History of location ..................................................................................................................... 11 2.3 Existing use classes .................................................................................................................... 12 2.4 Development of the area ........................................................................................................... 13 2.5 Existing building height ............................................................................................................ 14 2.6 Style of existing building .......................................................................................................... 15 2.7 Local public open space ............................................................................................................ 16 2.8 Access and communication ...................................................................................................... 17 3. Site description ................................................................................................................................ 20 3.1 Site location and description .................................................................................................... 20 3.2 Site size and shape ..................................................................................................................... 20 3.3 Site Utilities ................................................................................................................................ 20 3.4 Site accessibility ......................................................................................................................... 21 3.5 Site occupy ................................................................................................................................. 21 3.6 Archaeology ............................................................................................................................... 21 3.7 Flood risk ................................................................................................................................... 21 4. Acquisition of the site...................................................................................................................... 22 5. The Proposal development ............................................................................................................. 24 6. Planning ........................................................................................................................................... 28 6.1 Planning history ........................................................................................................................ 28 6.2 Planning policies........................................................................................................................ 28 7. Comparable Market Analysis ........................................................................................................ 32 7.1 Retail rental comparable properties ....................................................................................... 33 7.2 Offices rental comparable properties ...................................................................................... 38 7.3 Comparable properties for Residential................................................................................... 44 8. Appraisal.......................................................................................................................................... 54 8.1 Development costs ..................................................................................................................... 54 8.2 Residual valuation â&#x20AC;&#x201C; Analysis .................................................................................................. 57 8.3 Land value ................................................................................................................................. 60 Page | 4

9. Development Cash Flow ................................................................................................................. 63 10. Commercial Ground Rent ............................................................................................................ 66 11. Sensitives analysis ......................................................................................................................... 68 11.1 Sensitive analysis relating to the period before the site purchase....................................... 68 11.2 Sensitive analysis relating to the period after the site purchase ......................................... 71 12. Risk Analysis ................................................................................................................................. 72 13. Forward Funding .......................................................................................................................... 75 Conclusion ........................................................................................................................................... 77

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List of Figures Figure 1: Southwark Borough Map ........................................................................................................ 8 Figure 2: Old Kent Road map ............................................................................................................... 10 Figure 3: Historic Map ........................................................................................................................... 12 Figure 4: Map of existing user classes................................................................................................... 13 Figure 5: Development map of the area ............................................................................................... 14 Figure 6: Buildings Height.................................................................................................................... 15 Figure 7: Green spaces map .................................................................................................................. 16 Figure 8: Map of vehicles routes ........................................................................................................... 17 Figure 9: Map of Public Transport Access Level.................................................................................... 18 Figure 10: Site location map ................................................................................................................. 20

List of Tables Table 1: Proposed development user classes and area ........................................................................ 24 Table 2: Retail space schedule .............................................................................................................. 25 Table 3: Office space schedule .............................................................................................................. 25 Table 4: Residential units schedule ....................................................................................................... 26 Table 5: Affordable and open market units schedule........................................................................... 26 Table 1: Retail comparable 1- achieved prices ..................................................................................... 33 Table 2: Retail comparable 1 - adjusted prices ..................................................................................... 33 Table 3: Retail comparable 2- achieved prices ..................................................................................... 34 Table 4: Retail comparable 2- adjusted prices ...................................................................................... 34 Table 5: Retail comparable 3- achieved prices ..................................................................................... 35 Table 6: Retail comparable 3 - adjusted prices .................................................................................... 35 Table 7: Retail comparable 4 - achieved prices .................................................................................... 36 Table 8: Retail comparable 4 - adjusted prices .................................................................................... 36 Table 9: Retail comparable 5 - achieved prices .................................................................................... 37 Table 10: Retail comparable 5 - adjusted prices .................................................................................. 37 Table 11: Average rental price for retail scheme .................................................................................. 38 Table 12: Office comparable 1 - achieved prices ................................................................................ 38 Table 13: Office comparable 1 - adjusted prices ................................................................................. 39 Table 14: Office comparable 2 - achieved prices ................................................................................ 40 Table 15: Office comparable 2 - adjusted prices .................................................................................. 40 Table 16: Office comparable 3 - achieved prices ................................................................................ 41 Table 17: Office comparable 3 - adjusted prices .................................................................................. 41 Table 18: Office comparable 4 - achieved prices.................................................................................. 42 Table 19: Office comparable 4 - adjusted prices .................................................................................. 42 Table 20: Office comparable 5 - achieved prices.................................................................................. 43 Table 21: Office comparable 5 - adjusted prices .................................................................................. 43 Table 22: Average rental price for office scheme ................................................................................. 44 Table 23: Residential comparable 1 – achieved prices ......................................................................... 44 Table 24: Residential comparable 1 –adjusted prices .......................................................................... 45 Table 25: Residential comparable 2 – achieved prices ......................................................................... 46 Table 26: Residential comparable 2 – adjusted prices .......................................................................... 46 Table 27: Residential comparable 3 – achieved prices ......................................................................... 47 Table 28: Residential comparable 3 – adjusted prices .......................................................................... 47 Table 29: Residential comparable 4 – achieved prices ......................................................................... 48 Page | 6

Table 30: Residential comparable 4 – adjusted prices .......................................................................... 49 Table 31: Residential comparable 5 – achieved prices ......................................................................... 49 Table 32: Residential comparable 5 – adjusted prices .......................................................................... 50 Table 33: Residential comparable 1,2,3,4 – achieved and adjusted prices ........................................... 51 Table 34: Average adjusted sale price for residential scheme .............................................................. 51 Table 35: New annual rental prices and sale prices .............................................................................. 51 Table 36: New yield for retail scheme .................................................................................................. 53 Table 42: BCIS building costs................................................................................................................. 54 Table 43: CIL payment calculation ........................................................................................................ 56 Table 44: Rental value for commercial properties ............................................................................... 57 Table 45: Value from residential sales .................................................................................................. 57 Table 46: Net sale proceed ................................................................................................................... 57 Table 47: Total development costs ....................................................................................................... 58 Table 48: Total viable costs ................................................................................................................... 58 Table 49: Total interest ......................................................................................................................... 59 Table 50: Total cost to date .................................................................................................................. 59 Table 51: Land value ............................................................................................................................. 60 Table 52: Profit on cost ......................................................................................................................... 60 Table 46: Commercial ground rent calculation..................................................................................... 66 Table 47: The effect of retail rental prices ............................................................................................ 68 Table 48: The effect of office rental prices ........................................................................................... 69 Table 49: The effect of residential sale prices ...................................................................................... 69 Table 50: The effect of commercial yields ............................................................................................ 70 Table 51: The effect of building cost ..................................................................................................... 70 Table 52: Worse and best scenario ....................................................................................................... 71 Table 53: The effect of interest rate ..................................................................................................... 71

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1. Introduction The area that chooses for this development appraisal is the Old Kent Road. The New Southwark Plan aims to revitalise neighbourhoods and deliver more homes and jobs throughout the borough. The Plan includes an ambition to build 11,000 Council homes and to see major improvements in access to public transport in those parts of the borough, which have historically lacked connections.

As one of the Borough's Opportunity Areas, the Old Kent Road is a key piece in this strategy. It has more potentially available brownfield sites than any other area on the fringe of the Central Activities Zone. In addition, it is expected to deliver a significant number of new homes and jobs in the next years. Furthermore, in this area there are significant opportunities for business and industrial uses including increasing demand for flexible workspaces, changing shopping patterns and potential for new residential neighbourhoods with much-improved accessibility. The main facts that lead this growth are the potential for the Bakerloo line extension and two new tube stations, which would support very high levels of housing and business growth and this, will accelerate the rate of development and add further stimulus to the market.

Figure 1: Southwark Borough Map (wikipaidia, 2019)

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2. Locality 2.1 Description of Location

The subject property is located in south-east London, in the Southwark Borough, between central London and the outer suburbs. This opportunity area stretches from Elephant Park on New Kent Road all the way down the Old Kent Road to the edge of the borough of Southwark around Ilderton Road and Millwall Football Club. The selected site is within the Old Kent Road Opportunity Area and the Old Kent Road and Peckham Housing Zone. The site is also within the Protected Vista Extension. It is directly adjacent to a designated Strategic Industrial Location. (southwark.gov.uk, 2018)

The Old Kent Road is a historic London high street recognisable across the world due to its place as a low-value asset on the Monopoly board. Parts of the road continue to have a high street character, along with other stretches there are larger retail premises as well as housing estates, green spaces and civic and educational uses. The hinterland on either side of the road is a mix of industrial and community uses and housing.

Figure 2: Old Kent Road map (google maps, 2019)

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The Old Kent Road is one of the oldest routes into London. It is a major artery and forms one of a number of linear routes running in and out of London. Traditionally these routes have operated as a series of linear high streets, serving the towns and communities along them. The Old Kent Road exists as a road but has a little identity as a place. The neighbourhoods of Walworth, Bermondsey, Peckham and New Cross are much stronger as places.

2.2 History of location

In terms of Londonâ&#x20AC;&#x2122;s growth, the area was late to urbanise, but it has a long history stretching back almost two thousand years, to the Roman occupation and the origins of Watling Street. The Old Kent Road area has a remarkable past: Roman Watling Street, the medieval Pilgrim route to Canterbury, industrialisation, commerce and housing growth, through to 20th-century wartime bombardment and reconstruction and the nurturing of new communities.

By 1880s Old Kent Road had a continuous frontage, developed on both sides and on lateral roads such as Peckham Park Road and New Kent Road. At the end of the 19th Century, the development had been consolidated across the area, with schools and workspaces. Industrial area was concentrated near the railway line and the Surrey Canal. During the First World War, more schools were built and there was further intensification of the gasworks, as well as growth of industry near the canal. In the 1930s, were built many housing estates. (Allies & Morrison, The Old Kent Road place-making report, 2016)

In 1974, two main changes had happened in this area. Firstly, the creation of the Bricklayers Arms flyover. Secondly, was created a new urban park, the Burgess Park, was being carved into the area, representing an outstanding municipal gesture. In 1977, the area was sparsely populated but there were a manor house and friary. By the 18th century, there were houses. The creation of new bridges across the Thames, including Westminster Bridge in 1750, provided a spur to growth as the city spread out in all directions. The Mandela Way industrial estate opened in 1984 on the old railway lands, representing a shift to larger format industrial units and a new character. By the 1990s, much of the industry had been replaced by retail shops.

Today, Burgess Park forms the only sizeable open space in the area. Old Kent Road is now home to a range of uses including extensive industrial parks and out of town shopping. Most

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recently there has been a move towards more intimate housing developments and more mixused developments. (Affordable Housing and Viability Supplementary Planning Guidance (SPG), 2017)

Figure 3: Historic Map

(Allies & Morrison, The Old Kent Road place-making report, 2016)

2.3 Existing use classes

Old Kent Road area represents a neighbourhood within a variety of uses in relation to the rest of Southwark borough and wider than might expect of such a central location like this. Generally, the pattern of this area is of mono-use and relatively low density. There is relatively little evidence of mixed-use within blocks beyond the high street fragments. However, it is expected a higher incident of mixed uses in such a central location like this.

The existing lands across the area include the following user classes: 1. a variety of industrial and distribution uses 2. Warehouses 3. Small retail parks 4. High Street retail 5. Large residential which encompass both private residential and social housing 6. Community uses such as schools, faith establishments etc.

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Figure 4: Map of existing user classes

(Allies & Morrison, The Old Kent Road characterization study, 2015)

The Old Kent road as a major artery has attracted large users to the area. Big box retail outlets and large supermarkets have developed along the route over the last decades. In addition, the nature of the industry in the area has changed and is now dominated by large format warehouses and industrial facilities. Although the study area characterized by a variety of land uses, residential uses still very much dominate. At present, the breaks between residential and nonresidential often happen very suddenly, with some roads having completely unrelated uses on either side of the street.

2.4 Development of the area The area is experiencing a wide-scale regeneration with numerous residential-led redevelopment schemes and many mix used schemes, either under construction or proposed. The map below illustrates these new developments at the moment.

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Figure 5: Development map of the area

(Allies & Morrison, The Old Kent Road characterization study, 2015)

2.5 Existing building height The predominant height in this area is under four storeys. The area that characterized of these heights is located in the extensive residential areas away from Old Kent Road itself and the industrial areas running through the central and southern belts. The height of the buildings in the of the frontage along Old Kent Road itself tends to be higher. The biggest and tallest buildings are some closest to Old Kent Road. There are three clusters, each of three point blocks from the 1950s and 60s: •

Tustin Estate: three 18 storey towers of Windermere Point, Ambleside Point and Grasmere Point;

•

Ledbury Estate: three 14 storeys towers of Skenfrith House, Peterchurch House and Sarnesfield House

•

Avondale Square Estate: three 21 storey towers of East Point, Centre Point and West Point.

There are also a pair of 14 storey towers near South Bermondsey station, which are part of the Rennie Estate. There is however no overall pattern, the tallest point blocks were often consciously set alongside lower slabs providing visual contrast as well as a mix of accommodation.

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Figure 6: Buildings Height

(Allies & Morrison, The Old Kent Road characterization study, 2015)

2.6 Style of existing building The Old Kent Road area has a variety of types and styles of buildings. There is a contrast in form as well as the age between the various housing. The housing ranges from cottages through to slabs and point blocks. The style varies from neo-Georgian to modern movement to neovernacular. The materials and colours used throughout the housing estates are diffuse, but with an emphasis on the brick. There are some mansion blocks with sections of strong frontage on the Old Kent Road. At the western end of the street, there are blocks with the mansion of 6 storeys at the north side and with a lower rise to the rear. (Affordable Housing and Viability Supplementary Planning Guidance (SPG), 2017)

In the whole area, there are a number of original Victorian streets survive across the area and laid out as straight terraces, back to back, with private gardens between. The fronts of the terraces are highly unified in their scale, style and materials, establishing strong rhythms. Even the rebuilt Thorburn Square maintains this disciplined arrangement, but with the flats facing outwards, as well as into the Square. Housing that is more recent is consciously looser and informal. A range of styles of residential housing estates is exhibited across extensive social housing developments in the area. Many include street facing blocks whilst not keeping to a Page | 15

perimeter block format, while tower developments are generally free form and angular to existing streets.

The Old Kent Road has a number of sections of historic retail frontage. These are dispersed along the road which creates areas of higher intensity activity. In some cases the retail fronts have been built out to the pavement edge, in other sections, the historic fabric edges the pavement. In addition, the area has many large format retail stores. These stores and retail parks sit within extensive car parks with buildings set back away from the streets and extensive blank frontages. (Allies & Morrison, The Old Kent Road characterization study, 2015)

2.7 Local public open space The Old Kent Road area is sparsely supplied with green spaces. There only very considerable exception of green space consists the Southwark Park and Burgess Park. These parks are the largest in the area but both just outside of the study boundary. There are smaller areas of borough open land such as Paterson Park, which has a ball court, and play area and Bricklayers Arms Recreational Park, which has, play area facilities. Pocket parks like Bird In Bush Park are also part of the pattern of open space created from former housing. Caroline Gardens is the main exception, being part of the original design and amenity of the area. Another open space includes smaller, more private areas of open space, which have been created as a result of a style of housing estates that exists in the area.

Figure 7: Green spaces map

(Allies & Morrison, The Old Kent Road characterization study, 2015) Page | 16

2.8 Access and communication

The Old Kent Road area crossed by Old Kent Road. The A2 is one of Londonâ&#x20AC;&#x2122;s main arterial roads, widened in places and carrying high volumes of traffic. It is designated as a red route, which significantly limits the stopping of vehicles along the entire route. There are two routes that are more important in the area, which runs roughly parallel to Old Kent Road, Grange Road/Southwark Park Road. An important intersection occurs along this stretch of the Old Kent Road. The north-south route of Rotherhithe New Road and Peckham Par Road is a wellused route to Surrey Quays and Canada Water in the north and Peckham to the south. The area crossed also by many secondary roads that accommodate all the blocks of the area and communicated well by the main arterial road, the Old Kent Road.

Figure 8: Map of vehicles routes

(Allies & Morrison, The Old Kent Road characterization study, 2015)

The site records a Public Transport Access Level (PTAL) of 3 indicating moderate public transport accessibility on a scale of 1a-6b, where 1a is the lowest and 6b is the highest. There are numerous bus stops within 500 metres of the site that serve bus routes to and from central London and with connections to stations including Bakerloo and Northern Line and national rail services at Elephant and Castle and Northern, Jubilee and national rail services at London Page | 17

Bridge. Transport for London has recently considered options for extending the Bakerloo Line from Elephant and Castle. The preferred option has been identified as the one which would run through the Old Kent Road area and have one or two stations along the route. This would significantly enhance the PTAL ratings in the area, and give existing and new inhabitants much better access to the public transport network. (southwark.gov.uk, 2018)

Figure 9: Map of Public Transport Access Level

(Allies & Morrison, The Old Kent Road characterization study, 2015)

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3. Site description

Figure 10: Site location map

3.1 Site location and description The subject site is located at 524 Old Kent Road in London, SE1 5BA. It is located on the southwest side Old Kent Road (A2), which consist a major thoroughfare in South East London, passing through the London Borough of Southwark. This land is a part of Cantium Retail Park. The A2 provides access and connectivity to most of east London including Lewisham and Bexley Heath and then onto the M25 motorway and surrounding infrastructure.

The current site is a prominent brownfield site in a strategic location within the Old Kent Road Opportunity Area. It is allocated for a residential led, mixed use development in the emerging Old Kent Road Area Action Plan and New Southwark Plan

3.2 Site size and shape The subject parcel has an area of 1.90 acres (8.084,82 m² / 87.024,31 ft² / 0.88 hectares). It has a polygonal irregular shape. The frontage to Old Kent Road is 93.15 m.

3.3 Site Utilities Today, this land is a part of Cantium Retail Park and there is a large detached building which occupied by B&Q and a part is utilised for car parking to the retail units. The retail park provides vehicular access from Olmar Street to the north of the site. The existing building is of low architectural merit and its size is 4.568,13 m² (49.170,94 ft²). In addition, there is a brick, metal boundary approximately one metre high wraps around the pavements along Old Kent Road and Olmar Street, and behind this boundary, and there is a row of sparsely planted trees.

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3.4 Site accessibility This land is located 1.3 miles to the south of Bermondsey Underground Station, which is served by the Jubilee Line. Elephant and Castle Underground Station are located 1.6 miles to the south-east of the Subject. The Old Kent Road is well served with local bus routes connecting the area with the rest of London. In addition, within 500 metres of the site, there are several bus stops, which serve bus routes to and from central London with connections to tube stations including Bakerloo services at Elephant and Castle and Northern, Jubilee and national rail services at London Bridge. 3.5 Site occupy The current site occupied by B&Q retail.

3.6 Archaeology The site lies within the Bermondsey Lake Archaeological Priority Zone. The HEA demonstrates that the site contains no nationally designated assets and does not fall within a conservation area. Given its location within two APZs, it finds a â&#x20AC;&#x2DC;moderateâ&#x20AC;&#x2122; potential for remains. (southwark.gov.uk)

3.7 Flood risk The land is located within Flood Zone 3 and is protected by flood defences and as a result, has a low risk of tidal or fluvial flooding and low risk of surface and groundwater flooding. (southwark.gov.uk)

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4. Acquisition of the site The acquisition of the subject site would be achieved through an option agreement. An option agreement is an agreement entered into by a landowner and a potential purchaser (developer) of the landownerâ&#x20AC;&#x2122;s property. In this case, the parties enter into an agreement, an agreed payment is made to the landowner, and in exchange, the purchaser is granted a contractually binding first option to purchase the property. The purchase must take place within the option period, which can potentially last several years, or because of a trigger event, such as planning permission being granted for the development. (lindsays.co.uk, 2019)

This method has some benefits for both parties of the agreement to

the developer and the

seller. This is attractive mainly to developers who wish to buy land to build or develop upon. First of all this option prevents the landowner selling the property whilst the developer is exploring the viability of the project thereby reducing the risk and potential cost to the developer. Furthermore, a developer has the opportunity to agree the price of the land and developer has a certain initial costs and may end up paying less than market value. (attwells, 2019)

Moreover, the property market is instable and an option agreement does not guarantee a sale. On entering into an option agreement, the landowner often needs to grant a standard security to the developer, which means the seller cannot sell the land to a third, party for the period agreed in the option without restriction. However, this option has a defect for the seller. In case of the developer does not obtain planning permission and pulls out of the option, the purchase would not go ahead. (lindsays.co.uk, 2019)

An option agreement offers more flexibility as to whether or not the buyer wishes to buy. This option allows time to raise finance, obtain planning consent and throughout investigate the feasibility of a purchase. In case that property market changes and the acquisition involves a large amount of transaction, the developer has sufficiently analysed the development project and the potential viability before obtaining the site.

The subject project due to its complexity may takes long time obtaining the planning permission. In the situation that the permission takes longer than expected the option agreement is the more suitable option and the developer has the certainly due to the legally binding Page | 22

agreement with the seller. Moreover, if the developer is not in the position to purchase the land immediately, he is into a proposed deal with the seller.

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5. The Proposal development The development proposes the demolition of the existing building and the redevelopment of the site to provide a new mix-used building of 15 storey. The proposed development comprises the erection of a building, which is a mix of three different planning user class: 1) A1 – Retail shops (ground floor) 2) B1 – Business / offices (1st and 2nd floor) 3) C3a – Dwelling houses (3 nd to 15th floor)

The proposed development would comprise the creation of the following: 1) 27,240 sq. M consisting of 348 new residential units (including affordable homes) 2) 4,800 sq. M of office florspace 3) 4,400sq. M of retail floorspace

Table 1 presents the detailed amount of the area of each of the above uses and the number of floors and the total amount of units. Table 1: Proposed development user classes and area

Planning

Type

user class A1

B1 (a)

C3 (a)

Amount Floor(s) Number NIA

NIA sq. % of total

Units

ft.

of floors

Retail

8 Ground

shops

floor

Business

2 1st and

(offices)

2nd

Dwelling houses

348 3nd to

sq. m

NIA

4,400

47,361

12.07%

4,800

51,667

13.17%

12 27,240 293,209

74.75%

14nd Total

15 36,440 392,237

Retail The ground floor consists of 4,400 sq. M retail space (class A1) and could accommodate 8 different units, which area range of 400 to 600 sq. M The detailed retail space schedule present in table 2.

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Table 2: Retail space schedule

Type

Sq. meter

Sq. feet

Amount

Total NIA

Total NIA sq.

sq. m

feet

400

4,306

1,600

17,222

600

6,458

1,200

12,917

800

8,611

1,600

17,222

Total

4,400

47,361

Offices The first and second floor comprising a total internal area of 4,800 sq. M that would be allocated to office spaces. Each floor has an area of 2,400 sq. M and would be accommodated open plan office. The area has a small number of existing buildings that accommodate office spaces due to the low demand. As the area will be transformed over the next years and becoming increasingly a part of central London. These changes will be driven by the demand for office space in the future. Table 3 shows detailed information.

The proposed development will also deliver retail floorspace, with a traditional ‘high street’ frontage along Old Kent Road. New office floorspace will be provided at upper levels and a ‘destination’ space will be provided to accommodate new leisure and cultural uses within the application site. The non-residential floorspace proposed is estimated to generate many new positions and wages at this area. This makes a significant contribution towards meeting the economic aspirations of the adopted and emerging policy frameworks. Table 3: Office space schedule

Type

Sq. meter

Sq. feet

Amount of Total

NIA Total NIA sq.

floors

sq. meter

feet

2400

25,833

2,400

25,833

2400

25,833

2,400

25,833

4,800

51,667

Total

Residential

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The remaining 12 floors would accommodate the erection of 27,240 sq. M (2,270 per floor) of 348 residential units that consist of 4 different types: 1 bed, 2 bed, 3 bed and 4 bed. Table 4 presents the area of each type. Table 4: Residential units schedule

Type

Sq. meter

Sq. feet

Total amount

Total

NIA Total

NIA

sq. meter

sq. feet

1 Bedroom

538

4,200

45,208

2 Bedroom

753

108

7,560

81,375

3 Bedroom

969

108

9,720

104,625

4 Bedroom

120

1,292

5,760

62,000

348

27,240

293,209

Total

The proposed development will deliver a significant number of new homes to help meet current and future demand within the Borough. It would comply with the Council’s policies in terms of accessible and affordable homes and habitable rooms created by the development will be made available as ‘affordable rent’ or ‘shared ownership’. Table 5 present the amount and the proportion of affordable and open market housing. In respect of the ‘affordable housing’ to be provided at the site, a minimum of 35% of habitable rooms to be provided as ‘affordable’. The habitable rooms to be provided in accordance with local policy, which would comprise 70% (social rent) and 30% (shared ownership). The social rent product will be provided at a ‘Southwark Target Rent’ level. Table 5: Affordable and open market units schedule

Type

Amount of open market

Amount of Affordable

% Affordable

1 Bedroom

40.48%

2 Bedroom

40.74%

3 Bedroom

40.74%

4 Bedroom

0.00%

226

122

35.06%

Total

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In accordance with the Policy 6 of the Councilâ&#x20AC;&#x2122;s Core Strategy and the latest Affordable Housing SPD (2008) states that for developments providing 10 or more units or that are over 0.5 hectares in size, it will seek to secure 35% affordable housing (Urban/Suburban Density Zones) or 40% (Central Activities Zone). The subject site falls outside the Central Activities Zone therefore has a 35% requirement. To conclude, current proposed development offer appears to be compliant with the Councilâ&#x20AC;&#x2122;s target. (Affordable Housing and Viability Supplementary Planning Guidance (SPG), 2017)

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6. Planning

6.1 Planning history There have been a series of minor application for an expanded land, which encapsulate the subject site. The most relevant listed below:

•

91/175 Application type: Full Planning Application (FUL) Erection of two non food retail warehouses. Decision date: 05/1991 Decision Granted (GRA)

•

13/AP/1657 Application type: Certificate of Lawfulness - proposed (CLP) Use of part of retail warehouse as an ancillary pet care and treatment facility Decision date 28/08/2013 Decision: Granted (GRA)

•

13/AP/2649 Application type: Full Planning Application (FUL) Removal of the existing mezzanine and installation of a new mezzanine floor (measuring approximately 885 sq. m) Decision date 09/10/2013 Decision: Granted (GRA)

•

18/AP/1913 Application type: Scoping Opinion (EIA) (SCP) Provide a mixed use development including new buildings ranging between 3 to 48 storeys in height providing up to 1,160 residential units (Class C3), 4,318 sq. m of office floorspace (Class B1), 2,675 sq. m of commercial floorspace (Classes A1 - A3), 2,210 sq. m of destination space Decision date 28/08/2018 Decision: Scoping Opinion - EIA Regs (SCP) (southwark.gov.uk)

6.2 Planning policies

The redevelopment proposals have taken account of relevant national, regional and local planning policy. The development plans for the subject site comprise the National Planning Policy Framework 2012, London Plan 2016, Southwark Core Strategy 2011, and saved policies from The Southwark Plan (2007 - July). The site falls within the area covered by the draft Old Kent Road Area Action Plan. The current land is not located within or adjacent to a conservation area. The nearest conservation area, Glengall Road is located 370m west.

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6.2.1 National Planning Policy

According to the Paragraph 118 (Section A) states that decisions should encourage multiple benefits from both urban and rural land, including through mixed use schemes. Section C states that decisions should give “substantial weight” to the use of brownfield sites for homes. Section D promotes and supports the development of under-utilised land and buildings, especially if this would help to meet the needs for housing where land supply is constrained and available sites could be used more effectively. (National Planning Policy Framework , 2019)

6.2.2 Regional Planning Policy

London Plan (2016) In accordance with the London Plan, all developments should optimise housing output can be of the highest quality. Furthermore, new development should offer a range of housing choice in terms of mix, size and type.

Policy 2.13 relates specifically to ‘Opportunity Areas’. It states that development should optimise residential and non-residential output and densities, provide necessary social and other infrastructure to sustain growth and contain a mix of uses. It also states that development should realise the scope for intensification associated with existing or proposed improvements in public transport. (The London Plan, 2016)

The London Plan is supported by a number of Supplementary Planning Guidance (SPGs) and Best Practice Guidance (BPG) documents, which will be referred to in this Planning Statement as appropriate. This includes the following: •

Homes for Londoners: Affordable Housing and Viability SPG (2017)

•

Housing SPG (2016)

•

Shaping Neighbourhoods Accessible London: Achieving an Inclusive Environment SPG

•

(2014)

•

Shaping Neighbourhoods: Play and Informal Recreation SPG (2012)

•

Sustainable Design and Construction SPD (2014)

Page | 29

6.2.3 Local Planning Policy

Adopted Framework The current statutory development plan for Southwark comprises the Core Strategy (2011) and the saved policies of the Southwark Plan (2007). These documents aim to guide development in the Borough up to 2026. The Council also has a number of Supplementary Planning Documents which comprise a material consideration in respect of planning applications. These include the following documents which are referenced within this Statement where necessary: •

Affordable Housing SPD (2008);

•

Residential Design Standards SPD (2015)

•

Section 106 and CIL SPD (2015);

•

Sustainable Design and Construction SPD (2009); and

•

Sustainable Transport SPD (2009)

In addition, Strategic Policy 10 seeks to increase jobs within the Borough and protect existing businesses including those within the Old Kent Road action area. This would happen with the creation of the commercial uses. (New Southwark Plan, 2019)

Emerging Framework Policy P9 seeks to optimise the delivery of new homes within the Borough in accordance with the London Plan. (The London Plan, 2016)

6.2.4 Affordable Housing According to the Southwark Plan and saved policy 4.4, requires at least 35% of all new housing should be affordable. In the Old Kent Road Action Area, there is also the requirement of that 35%, 50% should be for social housing and 50% intermediate housing. However, the adopted London Plan 2017, sets a strategic requirement of 60% social housing and 40% intermediate housing. The emerging New Southwark Plan sets a requirement for a minimum of 25% of all the housing to be provided as social rented and a minimum of 10% intermediate housing to be provided, this equates to approximately 70% social housing and 30% intermediate housing. As such, the proposed development is in accordance with the emerging New Southwark Plan. (New Southwark Plan, 2019)

Page | 30

6.2.5 Design standards

Strategic Policy 12 of the Southwark Core Strategy (2011) states that all development in the borough will be expected to â&#x20AC;&#x153;achieve the highest possible standards of design for buildings and public spaces to help create attractive and distinctive places which are safe, easy to get around and a pleasure to be in. (Southwark Core strategy, 2011)

Saved policy 4.3 of the Southwark Plan requires at least 10% of all major new residential developments to be suitable for wheelchair users and London plan policy. In the present development, 35 of residential units would have wheelchair accessibility. (New Southwark Plan, 2019)

6.2.6 Residential mix

London Plan Policy 3.8 states that boroughs should seek to ensure that new developments offer a range of housing choices in terms of the mix of housing sizes and types, taking account of the housing requirements of different groups. At the local level, Core Strategy Strategic Policy 7 requires developments to provide 20% of the total units as â&#x20AC;&#x2DC;familyâ&#x20AC;&#x2122; sized (three or more bedrooms) 60% of the total units as having two or more bedrooms. (The London Plan, 2016)

The proposed development incorporates a range of apartment sizes, which will assist in delivering a mixed and balanced community and will complement the existing housing stock in the locality. The mix of units has been developed following careful consideration of the local characteristics of the site, market demand and the desire to optimise the development potential of the land within the Opportunity Area.

Page | 31

7. Comparable Market Analysis The Comparison Market Approach values a property based on the process of analysing recent sales or rent of similar properties in the area in order to derive a market value indication for the property being appraised. This process adjusts the difference in sales to make the sales cities as comparable to the subject as possible. The most similar to the subject selected aiming to provide the most meaningful indicator of value.

All comparable properties are within 1 mile of the subjectâ&#x20AC;&#x2122;s site and only for office space are up 2 miles because the number of existing office properties in this area are infinitesimal. Furthermore, all comparable properties are within 10 years of the subject development and are in letting the current period. (RICS, 2012)

A most reliable comparable analysis requires the comparable properties must be the same type as adjustment and their area must be within 20% of the subject. For that reason, comparable sold prices for the residential scheme are calculated for every different flat type, which it is depended to the number of bedrooms. In addition, all comparable have been sold in the last months. These should be adjusted with the total number of floors in the proposed development.

Adjustments have been done to all comparable properties in order to show if they are superior or inferior to the subject. The aim is into finding the most suitable sale or rental price and the ultimate purpose is the most reliable development valuation. All adjustments are calculated on the comparable properties, not the subject. After the adjustments are made, we have a new price that shows what the subject is worth based on the comparable sale or listing. Adjustments made for any dissimilarities, such as size, area, the total number of floors, age, location, condition and date of sale and reconciled through the process of adjustments.

On the following pages are found summaries of comparable sales and their subsequent analysis. The unit of comparison selected is the price per square foot.

Page | 32

7.1 Retail rental comparable properties Comparable 1: 269 – 271 Walworth Road Scheme Description This property provides retail accommodation only on the ground floor. This is located fronting Walworth Road and it is in a prominent location. Transport link to the area is good with Elephant and Castle and East of Kennington Underground Station very close to this building. (realla.co, 2019)

Achieved Prices The table below provides a summary of the achieved rental price. (realla.co, 2019) Table 6: Retail comparable 1- achieved prices

Unit / Floor

Date

Ground Floor

Nov. 2018

Terms (yrs)

Area (Sq.ft)

1,896

Annual rent Rent (psf) (£) £75,000

£37.50

Comparison to Subject The comparable is located 2 miles from the subject. This comparable is situated in a superior location but has significantly smaller size than the proposed and it is expected to achieve a little higher rate per sq. ft. Table 7: Retail comparable 1 - adjusted prices

Comparable 1

1st

Annual rental Price

£75,000

Location / Site view

-2,000

Age

+500

Lot Size

+1,000

Construction / Design / Condition

+1,000

Adjusted rental price (£) Area Adjusted rent (psf) (£)

£75,500 1,896 £39.82

Page | 33

Comparable 2: 26 Wansey Street Scheme Description

Scheme Description This property comprises of mix-used retail and residential development that consists part of the Elephant and Castle regeneration. This retail unit is located on the ground floor with off street access and it is in a prominent position. In addition, it has been recently refurbished. Transport link to the area is excellent providing short walk away from Elephant and Castle stations. (primelocation, 2019)

Achieved Prices The table below provides a summary of the achieved rental price. (primelocation, 2019) Table 8: Retail comparable 2- achieved prices

Unit / Floor

Date

Ground Floor

Dec. 2017

Terms (yrs)

Area (Sq.ft)

567

Annual rent Rent (psf) (£) £13,000

£22.93

Comparison to Subject The comparable is located 1.5 miles from the subject. This comparable is situated in a superior location but has significantly smaller size than the proposed and it is expected to achieve a slightly higher rate per sq. ft. Table 9: Retail comparable 2- adjusted prices

Comparable 2

Ground floor

Annual rental Price

£13,000

Location / Site view

-1,000

Age Lot Size Construction / Design / Condition Adjusted rental price (£) Area Adjusted rent (psf) (£)

+500 +1,000 +500 £14,000 567 £24.69

Page | 34

Comparable 3: 193 New Kent Road

Scheme Description This property comprises of retail space arranged over ground level only. The property is situated close to London Bridge, which considers being a superior retail location. (kalmars, 2019)

Achieved Prices The table below provides a summary of the achieved rental price. (kalmars, 2019) Table 10: Retail comparable 3- achieved prices

Unit / Floor

Date

Ground Floor

Dec. 2017

Terms (yrs)

Area (Sq.ft)

628

Annual rent Rent (psf) (£) £30,000

£47.77

Comparison to Subject The comparable is located 1.3 miles from the subject. This comparable is situated in a superior location and subject site is expected to achieve a slightly lower rent on a per sq. ft. basis. Table 11: Retail comparable 3 - adjusted prices

Comparable 3

Ground floor

Annual rental Price

£30,000

Location / Site view

-2,000

Age

+500

Lot Size

+500

Construction / Design / Condition

+500

Adjusted rental price (£) Area Adjusted rent (psf) (£)

£29,500 628 £46.97

Page | 35

Comparable 4: Tower Bridge Road

Scheme Description This property comprises of retail space arranged over ground level only. The property is located in a prominent trading location. Transport link to the area is well with Borough, London Bridge and Elephant & Castle Underground station is very close. (rightmove.co.uk, 2019)

Achieved Prices The table below provides a summary of the achieved rental price. (rightmove.co.uk, 2019) Table 12: Retail comparable 4 - achieved prices

Unit / Floor

Date

Ground Floor

Dec. 2018

Terms (yrs.) Area (Sq.ft) 10

518

Annual rent Rent (psf) (£) £22,500

£43.44

Comparison to Subject The comparable is located 1.6 miles from the subject. This comparable is situated in a superior location and subject site is expected to achieve a slightly lower rent on a per sq. ft. basis. Table 13: Retail comparable 4 - adjusted prices

Comparable 4

Ground floor

Annual rental Price

£22,500

Location / Site view

-2,000

Age

+500

Lot Size

+500

Construction / Design / Condition

+500

Adjusted rental price (£) Area Adjusted rent (psf) (£)

£22,000 518 £42.47

Page | 36

Comparable 5: 265 Old Kent Road

Scheme Description This property comprises of a mix used retail and residential development. This retail unit is situated on the ground floor and is located in a prominent location. It is located on the Old Kent Road and the transport level is good. (movehut.co.uk, 2019)

Achieved Prices The table below provides a summary of the achieved rental price. (movehut.co.uk, 2019) Table 14: Retail comparable 5 - achieved prices

Unit / Floor

Date

Ground Floor

Feb. 2019

Terms (yrs) 10

Area (Sq.ft) 1,208

Annual rent Rent (psf) (£) £33,500

£27.73

Comparable 4

Ground floor

Annual rental Price

£33,500

Location / Site view

Age

+500

Lot Size

+500

Construction / Design / Condition

+500

Adjusted rental price (£) Area Adjusted rent (psf) (£)

£35,000 1,208 £28.97

Adjusted rental price To summarize all the above the adopted annual rental per square foot for retail scheme is £36.59.

Page | 37

Table 16: Average rental price for retail scheme

Comparable Number

Distance to subject

Adjusted Rent / Sq.ft

2.0 miles

£39.82

1.5 miles

£24.69

1.3 miles

£46.97

1.6 miles

£42.47

0.6 miles

£28.97

Average

£36.59

7.2 Offices rental comparable properties After excessive market research, in the subject area, analyses below the most relevance to the proposed office scheme. Comparable 1: 291-299 Borough High Street

Scheme Description This is a mixed-use 6-storey building of masonry construction, providing retail accommodation arranged over the ground floor and office accommodation on the floors above. The property is located on Borough High Street and transport links in the area are excellent, with Southwark Station and Borough Station within close proximity. London Bridge station is also close by, providing National Rail services. (bbgreal, 2019)

Achieved Prices The table below provides a summary of the achieved rental prices. (bbgreal, 2019) Table 17: Office comparable 1 - achieved prices

Unit / Floor Area (Sq.ft) Annual rent (£)

Rent (psf) (£)

1st

1711

£64,163

£37.50

2nd

1708

£64,050

£37.50

3nd

1710

£64,125

£37.50

Average

£64,113

£37.50

Comparison to Subject

Page | 38

The comparable is located 1.8 miles from the subject. However, this scheme is significantly smaller than the subject and is a relatively low rise in comparison extending to 6 storeys, whereas the proposed extends to 14 storeys. Overall, the comparable is in a superior commercial location therefore, it is expected the subject to achieving a lower rate per sq. ft. Table 18: Office comparable 1 - adjusted prices

Comparable 1

1st

2nd

3nd

Average

Annual rental Price

£64,163

£64,050

£64,125

Location / Site view

-2000

Age

+1000

Lot Size

+1000

Construction / Design / Condition

+1000

£65,163

£65,050

£65,125

1711

1708

1710

£38.08

£38.09

£38.08

Adjusted rental price (£) Area (sq.ft) Adjusted rent (psf) (£)

£64,113

£65,113

£38.08

Comparable 2: 224-236 Walworth Road (Manor House)

Scheme Description This is a mixed used 4 storey building of concrete construction, providing retail on the ground floor and office spaces on the 4 above floors. The main entrance of the building is located on Walworth Road and is recently refurbished. The premises are situated on the Western side of A215 Walworth Road close to its junction between Penrose Street and Manor Place. Walworth Road is a main arterial road into Central London and a major shopping street that provide large varieties of amenities. Transport links in the area are excellent, with Kennington and Elephant Castle underground stations are both in close proximity with the Elephant & Castle providing also mainline railway services to Central London and out to Kent. There are also various buses serving the site. (realla.co, 2019)

Achieved Prices The table below provides a summary of the achieved rental prices. (realla.co, 2019)

Page | 39

Table 19: Office comparable 2 - achieved prices

Floor Date

Terms (yrs)

Area (Sq.ft)

Annual rent

Rent (psf) (£)

1st

Apr. 2017

2,798

£65,000

£23.23

2nd

Oct 2017

3501

£63,000

£17.99

3nd

Oct 2017

3526

£72,000

£20.42

4th

Dec. 2017

1067

£35,000

£32.80

Average

£58,750

£23.61

Comparison to Subject The comparable is located 1.5 miles from the subject site. Elephant and Castle Station is within close proximity to the comparable. It is expected that the proposed would achieve a similar rate per square foot. Table 20: Office comparable 2 - adjusted prices

Comparable 2

1st

2nd

3nd

4th

Average

Annual rental Price

£65,000

£63,000

£72,000

£35,000

Location / Site view

Age

+1,000

Lot Size

+1,000

£68,000

£66,000

£75,000

£38,000

2,798

3,501

3,526

1,067

£19.29

£18.85

£21.27

£35.61

£58,750

Construction / Design / Condition Adjusted rental price (£) Area (Sq.ft) Adjusted rent (psf) (£)

£61,750

£23.76

Comparable 3: 223-237 Borough High Street (Mitre House)

Scheme Description This property providing retail on basement and modern office arranged over the four upper floors. The office accommodation is let to The Secretary of State or Communities & Local Government from the last quarter of 2016 until September 2022. Transport links in the area are excellent, the premises are located very close proximity to Borough Underground station and

Page | 40

London Bridge and Elephant and Castle Underground Station are also near providing also railway services to Central London and out to Kent. There are also various buses serving the site. (lewisellis.co.uk, 2019)

Achieved Prices The table below provides a summary of the achieved rental price. (lewisellis.co.uk, 2019) Table 21: Office comparable 3 - achieved prices

Floor 1st - 4th

Date Sept.. 2018

Terms (yrs)

Area (Sq.ft)

Annual rent

Rent (psf) (£)

31,576

£1,226,750

£38.85

4.6 years

Comparison to Subject The comparable is located 1.7 miles from the subject site. The comparable is in a superior location and let to a strong covenant as a result, it is expected to achieve a lower rental price for the proposed. Table 22: Office comparable 3 - adjusted prices

Comparable 3

1st

Annual rental Price

£1,226,750

Location / Site view

-2000

Age

+1000

Lot Size

+1000

Construction / Design / Condition

+1000

Adjusted rental price (£) Area (Sq.ft) Adjusted rent (psf) (£)

£1,227,750 31,576

£38.88

Comparable 4: 9 Tanner Street (Swan Court)

Scheme Description This premise comprising of e buildings of 4 storeys and accommodate high quality modern offices offering a selection of individual office studios accessed off a gated courtyard. It is located in the north side of Tanner Street opposite of Tanner Park. Transport link to the area is Page | 41

well and London Bridge Underground station is a short walk away providing access to the Jubilee, Northern, and Overground lines. The surrounding area offers a large variety of amenities. (novaloca, 2019)

Achieved Prices The table below provides a summary of the achieved rental prices. (novaloca, 2019) Table 23: Office comparable 4 - achieved prices

Floor

Date

Terms(yrs.)

Area (Sq.ft)

Annual rent

Rent (psf) (£)

Ground floor

Jan. 2017

2,104

£92,000

£43.73

1st

Oct 2017

2,730

£105,000

£38.46

2nd

Sept. 2017

673

£26,500

£39.38

3nd

Dec. 2017

1,594

£72,000

£45.17

Average

£73,875

£41.68

Comparison to Subject The comparable is located 1.6 miles from the subject site. The comparable is in a superior location as a result, it is expected to achieve a lower rental price for the proposed. Table 24: Office comparable 4 - adjusted prices

Comparable 4

Groundfloor

1st

2nd

3nd

Average

Annual rental Price

£92,000

£105,000

£26,500

£72,000

Location / Site view

-2000

Age

+1000

Lot Size

+1000

+500

£92,500

£105,500

£27,000

£72,500

2,104

2,730

673

1,594

£43.96

£38.64

£40.12

£45.48

£73,875

Construction / Design / Condition Adjusted rental price (£) Area (Sq.ft) Adjusted rent (psf) (£)

£74,375

£42.05

Comparable 5: 53 Sandgate Street (Action House) Page | 42

Scheme Description These premise accommodate refurbishment office space on the ground floor and the two upper floors. All tenants could access to all amenities of the building. Transport link in the area is strong because this building is located very close proximity to South Bermondsey Station and is near to Queens Road Peckman and Surrey Quays providing also railway services to Central London. In addition, there are also various buses serving the site. (rightmove.co.uk, 2019)

Achieved Prices The table below provides a summary of the achieved rental prices. (rightmove.co.uk, 2019) Table 25: Office comparable 5 - achieved prices

Unit / Floor

Date

Terms (yrs.)

Area (Sq.ft)

Annual rent

Rent (psf) (£)

1st

Oct. 2017

100

£4,680

£46.80

2nd

Nov. 2018

650

£25,428

£39.12

3nd

Nov. 2018

750

£28,680

£38.24

Average

£19,596

£41.39

Comparison to Subject The comparable is located very close to the proposed development only 0.4 miles away. Although the comparable property is in the same location, it is expected to achieve a higher rental price because it is located on the main road and it will be newer construction.

Table 26: Office comparable 5 - adjusted prices

Comparable 5 Annual rental Price

1st

2nd

3nd

£4,680 £25,428

Average

£28,680

Location / Site view

+200

Age

+500

Lot Size

+500

Construction / Design / Condition

+500

£6,380 £27,128

£30,380

Adjusted rental price (£) Area (Sq.ft)

100

650

£19,596

£21,296

750

Page | 43

£63.80

Adjusted rent (psf) (£)

£41.74

£40.51

£48.68

Average adjusted rental price To summarize all the above the adopted annual rental per square foot for office scheme is £38.29. Table 27: Average rental price for office scheme

Comp. Number

Distance to subject

Adjusted Rent / Sq.ft

1.8 miles

£38.08

1.5 miles

£23.76

1.7 miles

£38.88

1.6 miles

£42.05

0.4 miles

£48.68

Average

£38.29

7.3 Comparable properties for Residential Comparable 1: 387 – 399 Rotherhithe New Road

Scheme Description This scheme is a new mix used development that measures 0.5 hectares. It is located 0.3 miles to the subject. This development provides 158 flats 1, 2 and 3 bedroom units and range extend from first to 19th floors. The scheme has disabled parking, cycle storage and a play area, and the majority of apartments benefit from either a terrace or balcony. (rightmove.co.uk, 2019)

Achieved Prices The table below provides a summary of the achieved sold prices. (rightmove.co.uk, 2019) Table 28: Residential comparable 1 – achieved prices

Area Unit 1 Bedroom

Floor 13

Sold Date Oct. 2018

(Sq.ft) 561

Sale price Sale price (£) £425,000

(psf) (£) £757.58

Average £757.58

Page | 44

2 Bedroom

2 Oct. 2018

904

£595,000

£658.19

2 Bedroom

4 Sep. 2018

664

£520,000

£783.13

2 Bedroom

5 Feb. 2019

944

£620,000

£656.78

2 Bedroom

6 Jan. 2018

764

£530,000

£693.72

3 Bedroom

Dec. 2018

1,101

£650,000

£590.37

3 Bedroom

Aug. 2017

987

£580,000

£587.64

3 Bedroom

Oct. 2018

961

£620,000

£645.16

£697.95

£607.72

Comparison to Subject The comparable is located very close to the proposed development only 0.3 miles away. Although the comparison is in the same location, it is expected to achieve a higher price because it is located on the main road and it will be a newer construction. In addition, the flats in the upper floors would achieve a higher sale price, as a result, the average price per unit type valued more. Table 29: Residential comparable 1 –adjusted prices

Comparable 1

1 Bedroom

2 Bedroom

3 Bedroom

£757.58

£697.95

£607.72

Lot Size

Construction / Design / Condition

£762.58

£702.95

£612.72

Average sale price (psf) (£) Location / Site view Age

Adjusted sale price (psf) (£) Comparable 2: 525 Old Kent Road

Scheme Description This scheme is a new development that launched in 2016. It is located very close to the subject development only 0.1 miles away. The development comprises a part four, part five and part

Page | 45

six-storey building including 43 flats 1, 2 and 3 bedroom units and 16 of them are affordable. (nethouseprices, 2019)

Achieved Prices The table below provides a summary of the achieved sold prices. (mouseprice, 2019), (nethouseprices, 2019) Table 30: Residential comparable 2 – achieved prices

Area Unit

Floor

Sold Date

Sale price

(Sq.ft)

Sale price (£)

(psf) (£)

1 Bedroom

2 Mar. 2017

695

£510,000

£733.81

1 Bedroom

3 Jan. 2017

657

£492,500

£749.62

1 Bedroom

4 Mar. 2017

695

£515,000

£741.01

2 Bedroom

Nov. 2016

830

£565,000

£680.72

2 Bedroom

Jul.2016

813

£562,500

£691.88

2 Bedroom

Sep. 2017

797

£565,000

£708.91

3 Bedroom

Sep. 2017

821

£560,800

£683.07

3 Bedroom

Oct. 2016

805

£540,000

£670.81

Average

£745.31

£693.84

£676.94

Comparison to Subject The comparable is located very close to the proposed development only 0.1 miles away. Although the comparison is in the same location, it is expected to achieve a higher price because, the flats in the upper floors would achieve a higher sale price, as result, the average price per unit type valued more. Table 31: Residential comparable 2 – adjusted prices

Comparable 2 Average sale price (psf) (£) Location / Site view Age

1 Bedroom

2 Bedroom

3 Bedroom

£745.31

£693.84

£676.94

Page | 46

Lot Size

Construction / Design / Condition

£752.31

£700.84

£683.94

Adjusted sale price (psf) (£) Comparable 3: 58 Gradgen Road

Scheme Description This scheme is the newest mix used development in the area and launched in September 2018. It is located 0.3 miles to the subject. This development comprises of 6 building with 406 apartments of 1, 2 and 3 bedrooms units. In addition, the development includes 200,000 sq. ft. of mixed-use commercial space. Transport link is very good, it is located only 15 minutes’ walk to London Bridge and Bermondsey Stations. (knightfrank, 2019)

Achieved Prices The table below provides a summary of the achieved sold prices. . (knightfrank, 2019) Table 32: Residential comparable 3 – achieved prices

Area Unit

Floor

Sold Date

(Sq.ft)

Sale price Sale price (£)

(psf) (£)

Average

1 Bedroom

2 Oct. 2018

588

£605,000

£1,028.91 £1,028.91

2 Bedroom

2 Jan. 2018

790

£1,140,000

£1,443.04 £1,443.04

3 Bedroom

6 Nov. 2018

860

£1,410,000

£1,639.53 £1,639.53

Comparison to Subject The comparable is located in a superior location, therefore, it is expected to achieve a lower rental price for the proposed. In addition, the upper floors are expected to achieve a higher price, as a result, the adjusted price is slightly lower. Table 33: Residential comparable 3 – adjusted prices

Comparable 3 Average sale price (psf) (£) Location / Site view Age

1 Bedroom

2 Bedroom

3 Bedroom

£1,028.91

£1,443.04

£1,639.53

-10

Page | 47

-5

£1,013.91

£1,428.04

£1,624.53

Lot Size Construction / Design / Condition Adjusted sale price (psf) (£)

Comparable 4: 6 Pages Walk

Scheme Description This scheme is a new development that launched in 2018. It is located 1.2 miles of the subject development. The development comprises a part four and part six-storey building including 82 flats 1, 2 and 3 bedroom units and 19 of them are affordable. (zoopla.co.uk, 2019)

Achieved Prices The table below provides a summary of the achieved sold prices. (nethouseprices, 2019) Table 34: Residential comparable 4 – achieved prices

Area Unit

Floor

Sold Date

(Sq.ft)

Sale price Sale price (£)

(psf) (£)

Average

1 Bedroom

1 Nov. 2017

544

£575,000

£1,056.99

1 Bedroom

2 Mar. 2018

580

£610,000

£1,051.72

1 Bedroom

3 Nov. 2017

582

£635,000

£1,091.07 £1,066.59

2 Bedroom

Mar. 2018

840

£855,000

£1,017.86

2 Bedroom

Mar. 2018

732

£649,000

£886.61

2 Bedroom

Mar. 2018

850

£900,000

£1,058.82

3 Bedroom

Mar. 2018

1,076

£1,050,000

£975.84

3 Bedroom

Mar. 2018

1,436

£1,600,000

£1,114.21

3 Bedroom

Mar. 2018

1,399

£1,590,000

£1,136.53 £1,075.52

£987.76

Comparison to Subject This scheme is in a superior and more attractive location compared to the Subject, given its proximity to the tube with better connectivity. Moreover, this is a lower rise than the subject

Page | 48

and as such, it would expect the units on the upper floors of the Subject to command a premium. As a result, the adjusted price is expected to be slightly lower. Table 35: Residential comparable 4 – adjusted prices

Comparable 4

1 Bedroom

2 Bedroom

3 Bedroom

£1,066.59

£987.76

£1,075.52

-10

Age

Lot Size

£982.76

£1,070.52

Average sale price (psf) (£) Location / Site view

Construction / Design / Condition Adjusted sale price (psf) (£)

£1,061.59

Comparable 5: Elmington Green, Lomond Grove

Scheme Description This scheme is a new development that launched in 2017. It is located 1.9 miles of the subject. The development comprises of 247 flats 1, 2, 3 and 4 bedroom units and 91 of them are affordable. Denmark Hill Station is located approximately 0.8 miles to the south of the comparable. The surrounding area is predominantly residential. (rightmove.co.uk, 2019)

Achieved Prices The table below provides a summary of the achieved sold prices. (foxtons, 2019) Table 36: Residential comparable 5 – achieved prices

Area Unit

Floor

Sold Date

(Sq.ft)

Sale price Sale price (£)

(psf) (£)

1 Bedroom

1 Nov. 2017

576

£429,995

£746.52

1 Bedroom

2 Mar. 2018

563

£419,995

£745.99

1 Bedroom

3 Nov. 2017

673

£449,995

£668.64

2 Bedroom

Oct. 2017

745

£494,995

£664.42

2 Bedroom

Mar. 2018

772

£529,995

£686.52

2 Bedroom

Oct. 2017

809

£514,995

£636.58

Average

£720.38

£662.51

Page | 49

3 Bedroom

Sep. 2017

1,173

£699,995

£596.76

3 Bedroom

Mar. 2018

1,000

£609,995

£610.00

3 Bedroom

Nov. 2017

1,151

£699,995

£608.16

4 Bedroom

Sep. 2017

1,386

£784,995

£566.37

4 Bedroom

Nov. 2017

1,386

£784,995

£566.37

4 Bedroom

Oct. 2017

1,465

£784,995

£535.83

£604.97

£556.19

Comparison to Subject This scheme is in a superior and more attractive location compared to the subject with superior access to local amenities. Moreover, this is a lower rise than the subject and as such, it would expect the units on the upper floors of the Subject to command a premium. As a result, the adjusted price is expected to be slightly higher. Table 37: Residential comparable 5 – adjusted prices

Comparable 5 Average sale price (psf) (£) Location / Site view Age Lot Size

1 Bedroom

2 Bedroom

3 Bedroom

4 Bedroom

£720.38

£662.51

£604.97

£556.19

-10

£722.38

£664.51

£606.97

£558.19

Construction / Design / Condition Adjusted sale price (psf) (£)

All new developments in the area do not include 4 bedroom flats. All the above comparable properties do not provide 4 bedroom apartments except for the last one. For this reason, added four more comparable properties from the area in order to support the sale price for the 4 bedroom apartments. All these properties are older and are located in an inferior site, as a result, the adjusted process are higher than comparable properties prices.

Page | 50

Table 38: Residential comparable 1,2,3,4 – achieved and adjusted prices

Address

Sale

Sale price

(Sq.ft)

price (£)

(psf) (£)

Floor Sold Date

Area

Trafalgar Avenue

Oct. 2017

2,517

Yaldham House

Jan. 2018

East Street

Marcia Road

£1,500,0

Adjusted Sale price (psf) (£)

£595.95

£607.95

1,056 £499,995

£473.48

£485.48

Nov. 2017

850 £400,000

£470.59

£482.59

Dec. 2018

1,120 £709,995

£633.92

£645.92

(realyse, 2019)

Average adjusted sale prices To summarize all the above the adopted sale price per square foot for 1, 2 and 3 Bedroom unit are shown in the following table. Table 39: Average adjusted sale price for residential scheme

Average adjusted Sale price for

Comparable Distance Number

to subject

1 bedroom

2 bedroom

3 bedroom

4 bedroom

0.3 miles

£762.58

£702.95

£612.72

£607.95

0.1 miles

£752.31

£700.84

£683.94

£485.84

1.1 miles

£1,013.91

£1,428.04

£1,624.53

£482.59

1.2 miles

£1,061.59

£982.76

£1,070.52

£464.92

1.9 miles

£722.38

£664.51

£606.97

£558.19

Average

£862.56

£895.82

£919.74

£556.03

Consequently, from all above detailed market comparable analysis, the following table present the rates for the sale price and rent per square feet for residential scheme and commercial respectively. Table 40: New annual rental prices and sale prices

Type Retail

New Annual rent (Sq. Ft) £36.59

Page | 51

Offices Type

£38.29 New Sale price (Sq. Ft)

1 Bed

£862.56

2 Bed

£895.82

3 Bed

£919.74

4 Bed

£556.03

7.4 Retail investment comparable analysis

Comparable 1: 262-266 Old Kent Road It is located at the same area of the subject land. The property is fully let and is currently producing an income of £150,000 per annum. The property sold in March 2018 for £2,500,000 and reflecting a yield of 4.51%.

Comparable 2: 47-48 Southwark Bridge Road This property sold in November 2017 for £1,660,000 and was achieving a passing rent of £57,000 per annum reflecting a yield of 3.23%. The comparable property occupies a prominent corner position at the junction of Borough Road and Southwark Bridge Road. It is located in a superior location compared to the subject, as a result, the adjusted yield is expected to be slightly higher.

Comparable 3: 129 Southampton Way The property is let for a five-year term commencing in November 2017 at a passing rent of £13,500 per annum. The property sold for £715,000 reflecting a yield of 7.71%.The comparable is of an inferior quality compared to the proposed and therefore would expect a lower yield to be achieved.

Page | 52

To summarize all the above the adopted yield for retail space is 5% as shown in the following table. Table 41: New yield for retail scheme

Adjusted Comparable

Address

Date

Yield

yield

262-266 Old Kent Road

Mar. 2018

4.51%

47-48 Southwark Bridge Road

Nov. 2017

3.23%

3.55%

129 Southampton Way

May 2018

7.71%

6.94%

Average

5.00%

Page | 53

8. Appraisal According to the Development Viability SPD was adopted in March 2016 of Southwark Council state that “The market value (MV) of the site should be calculated using the residual method of valuation to determine the amount available to pay for the site. This is the residual land value (RLV). The residual land value (RLV) should be cross-checked against market site comparables to ensure that the residual land value is consistent with prices being paid for sites in the market.” ( Development Viability SPD , 2016)

8.1 Development costs Building Costs The building cost calculated with the assumptions of the erection a new build with 15 storeys. According to the Building Cost Information Service (BCIS) of the Royal Institution of Chartered Surveyors (RICS), the price per sq .M for the 2th quarter of 2019 forecast in London Borough of Southwark for each use it is presented in Table 8. (BCIS, 2019) The rates of BCIS include the cost of demolition. Table 42: BCIS building costs

Type

£/Sq. M

Retail

£2,790

Office

£2,395

Residential

£2,274

Source: Appendix B

Fees Professional fees include the fees element covers things such as payments to professionals who are involved in the process such as architects, quantity surveyor, engineers and other professional inputs. Fees might account for 12 – 15 per cent of the construction cost depending on the complexity of the building. (Scarrett & Osborn, 2014) For the current appraisal it is preferable a percentage of 15% due to complexity and size of this development.

Page | 54

Contingency cost Contingency cost is almost invariably included within a residual valuation. The figure is usually taken as a percentage, often 3%-5% of Building cost and professional fees. (Isaak & O'Leary, 2012) For this development, the contingency cost is 5% because of the complex of this development.

Post construction cost It is assumed that the post contact cost for this development is £ 300,000.

Marketing Advertising and marketing are crucial to development. Publicity costs can be high and not entirely predictable. Marketing costs and any other cost associated with the scheme will also be factored in. These will include letting and sale fees. Generally, this cost calculated as 0.1 – 2 % of GDV. A rate of 0.2% of the gross development value has been applied to allow for an advertising budget for marketing of the scheme. (Isaak & O'Leary, 2012) For the presented development the marketing costs is approximately £ 200,000.

CIL According to the Planning Act 2008, Community Infrastructure Levy (CIL) is a charge that required by authorities for certain new developments, in order to pay for the improved and increased infrastructure required as a consequence. For the subject site required the Mayoral CIL and the Southwark CIL.

The Mayoral CIL applies to CIL liable developments granted planning permission on or after 1 April 2012, which is used by the Mayor of London to fund the delivery of Crossrail. For developments in Southwark, the Mayoral CIL rate is £35 per square meter. (Greater London Authority (GLA), 2019)

The Southwark CIL came into effect on 1 April 2015. The Southwark CIL charges vary depending on the development type and whether the development is in the higher or lower charge area of the borough. The subject site is located in Zone 2 of Southwark and the fees for every use per sq. M is presented in the Table 3. (London Borough of Southwark Revised Community Infrastructure Levy Charging Schedule (December 2017), 2019)

Page | 55

Table 43: CIL payment calculation

User Class

Sq. ft

Area Sq. M

CIL per sq. m

CIL

Southwark CIL for Office

47,361

£0

Southwark CIL for Retail

51,667

4,40 0 4,800

£136

£652,800

Southwark CIL for Residential 293,209

27,240

£218

£5,938,320

Mayoral CIL

36,440

£35

£1,275,400

Total

£7,866,520

Source: (London Borough of Southwark Revised Community Infrastructure Levy Charging Schedule (December 2017), 2019)

NHBC For the current development calculate a NHBC cost estimated at £ 250,000.

Interest The finance costs are calculated using an 8% interest rate. The timescale assumptions used to calculate finance are 6 months’ pre-construction, 39 months’ construction and 48 months sales period. This development period it is consider to be realistic for a scheme of this size.

Development profit The blended profit on GDV is 18%. The profit adopted is 20% on GDV for the private housing, 6% on GDV for the affordable housing, and 15% on GDV for the commercial. According to the Planning Practice Guidance (as updated July 2018), refers to a 15-20% on GDV as the range of acceptable profit allowances in viability assessments. (Planning practice guidance , 2018)

Page | 56

8.2 Residual valuation – Analysis Table 44: Rental value for commercial properties

User Class

Sq. ft

Rate

ERV

51,667 38.29

Retail

Value 1,978,329

YP perp@

5.00%

47,361 36.59

Retail

£39,566,589

1,732,939

YP perp@

5.00%

£34,658,780

Total

£74,225,368

6.80%

£4,725,960

Net figure

£69,499,409

less purchasers costs

Table 45: Value from residential sales Open

n. flats

Market

sq.

Total sq. Ft.

Price per sq.

Ft.

Total sales

Feet

1 bed

538

26,910

863.56

£23,211,296

2 Bed

753

48,222

895.82

£43,198,516

3 Bed

969

62,000

919.74

£57,023,992

4 Bed

1,292

62,000

556.03

£34,607,848

Affordable

n. flats

sq. Ft.

Total sq ft

Price per sq.feet

Total sales

1 bed

538

18,299

604.49

£11,048,577

2 Bed

753

33,153

627.07

£20,789,286

3 Bed

969

42,625

643.82

£27,442,796

4 Bed

1,292

389.22

£0

Total

348

293,209

Total Sales

£217,322,311

Table 46: Net sale proceed

Value Retail Offices

£69,499,409

Residential

£217,322,311

Total

£286,821,720

Less sell costs@2%

£5,736,434

Page | 57

Net sale proceed

£281,085,285

Table 47: Total development costs

Type of Development Costs

Amount £105,303,300

Building costs

£15,795,495

Fees (15%) Contingency (5%)

£6,054,940

Post contract costs

£300,000

Marketing

£200,000 £7,866,520

CIL

£250,000

NHBC Total

£135,770,255

Rent free period A rent free period of 6 months is applied to all the non-residential uses. There is no void period applied either in the investment valuation or in the development period, which is a somewhat optimistic assumption as would require all lettings to be secured by practical completion. This is very likely in the case of the warehouse retail units (which are close to being pre-let) but may be less likely for some of the other units. Table 48: Total viable costs

Rent free period

Value

Office

£ 1,978,329

Retail

£ 1,732,939

Rent lost in the letting period Office

12 months

£ 1,978,329 loss rent

£5,689,598

Total rent loss Empty rates

£ 593,499 Total Viable Costs

£593,499 £142,053,351

Page | 58

Table 49: Total interest

Interest £ 135,270,255

During construction 24 months 8%

£10,821,620

During residential sales 6 months

£ 39,333,455

£786,669 -68,493,930

After Residential Sales 6 months left 8%

-£2,739,757 Total interest

£8,868,532

Table 50: Total cost to date

Total Viable Costs

£ 141,867,679

Total Interest

£8,868,532

Total cost to date

£150,921,884

Page | 59

8.3 Land value Table 51: Land value

Developers profit at

18%

£27,165,939

total

£178,087,823

net

£102,905,144 £17,150,857

Reduce by profit on site

Reduce by holding cost of site

Reduce by buying cost of site

net

£85,754,286

£16,597,604

net

£69,156,683

6.80% net

Site value

£64,753,448 £64,800,000

Table 52: Profit on cost

Total profit

£44,316,796

Total cost

£236,676,170

Profit on cost

19%

Page | 60

Development appraisal End value Offices

Sq.ft

Rate

ERV

51,667

38.29

YP perp @

Value 1,978,329 5.00%

£39,566,589

1,732,939 5.00%

£34,658,780

Retail 47,361

36.59

YP perp @

£74,225,368 less purchasers costs

6.80% net

Residential Open market 1 Bed 2 Bed 3 Bed 4 Bed Open market 1 Bed 2 Bed 3 Bed 4 Bed

N of flats

area

Total area

£4,725,960 £69,499,409

Price

50 64 64 48

538 753 969 1,292

26,910 48,222 62,000 62,000

863.56 895.82 919.74 556.03

£23,238,205 £43,198,516 £57,023,992 £34,473,928

34 44 44 0

538 753 969 1,292

18,299 33,153 42,625 0

604.49 627.07 643.82 389.22

£11,061,386 £20,789,286 £27,442,796 £0

348

293,209

£217,228,108

Total net value

£286,727,517

Less sales cost

2% Net sales proceeds

£5,734,550 £280,992,966

Costs construction office retail resiential

Fees Contingency

net

gross

rate

4,800 4,400 27,240

6,000 4,840 34,050

2,395 2,790 2,274

£14,370,000 £13,503,600 £77,429,700

44,890

£105,303,300

15%

£15,795,495

£6,054,940

Post contract costs

£300,000

Marketing

£200,000

CIL

£7,866,520

NHBC

£250,000 Total costs

£135,770,255

Rent free period Office Retail

1,978,329 1,732,939

Office

1,978,329

Rent lost in letting peiod £5,689,598 Empty rates

593,499

£593,499 Total variable costs

£142,053,351

Page | 61

Interest During constructuin 24 months

135,270,255 8% £10,821,620

During residential sales

39,333,455 6 months 8%

£786,669

After Residential Sales

-68,493,930 6 months 8%

-£2,739,757 Total interest

Total cost to date Developer profit at

£150,921,884 18%

£27,165,939 Total

£178,087,823

Net

£102,905,144

Reduce by profit on site

£17,150,857 net

Reduce by holding cost of site

£8,868,532

£85,754,286 £16,597,604

net

£69,156,683

net

£64,753,448

Site value

£64,800,000

Reduce by buying cost of site 6.80%

Total profit Total cost Profit on cost Buy site Start constr End constr Let retail Retail rent starts Residential first sale Residential last sale Office rent free starts Office rent starts Final exit

£44,316,796 £236,676,170 19% 0 3 27 24 28 28 36 28 36 36

Page | 62

9. Development Cash Flow The valuation of development and cash flow are two fundamentally different things. Valuation is just a market price based on assumption as a snapshot in time but it is not a forecast for the future. Cash flows can also enable more explicit assumptions to be put into the appraisal which cannot be accommodated in the 'snapshot' traditional residual valuation. These are changes over time, for instance changes in interest rates. (Isaac, 1996) Development Timescale The development program for the subject proposal will take up to 36 months to be accomplished. The timescale will be divided into three main period that represent threedifferent group of activities. The first period is pre-construction and include the preparation and submission of planning application which will take up to 3 months to be finalized. The second period is the construction activity, which will take up to 24 months and consider it to be reasonable. The last period is the sale period, which will 9 months for retails, office and apartments to be sold and let.

Cash flow calculation The commercial value calculated in the cost of the last month of the development program. The open market residential value calculated divided by six for 6 months after the construction period, which takes month 28 to 33. The affordable market residential value calculated in the first month after the construction period. Construction costs, fees and contingencies calculated for the twelve months of construction period divided by 12 of each of them. The postconstruction costs calculated for the months after construction which are the last nine months of the development period. Marketing costs added to the costs of the 23nd month. The CIL and HBSC cost added to the first month. The other variable costs added to the months after the construction period. The cost of land added to the month before the start of the development period. The interest rate calculated at 8%. The following pages show the development cash flow calculation per month.

Page | 63

100% 0

1% 4

2.00% 5

2.00% 6

3.00% 7

3.00% 8

4.00% 9

4.00% 10

5.00% 11

6.00% 12

£1,053,033 £157,955 £60,549

£2,106,066 £315,910 £121,099

£3,159,099 £473,865 £181,648

£4,212,132 £631,820 £242,198

£5,265,165 £789,775 £302,747

£6,318,198 £947,730 £363,296

£1,271,537 £525,161 £80,570,857

£2,543,075 £537,139 £83,651,071

£2,543,075 £557,674 £86,751,819

£3,814,612 £578,345 £91,144,777

£3,814,612 £607,632 £95,567,021

£5,086,149 £637,113 £101,290,283

£5,086,149 £675,269 £107,051,701

£6,357,687 £713,678 £114,123,066

£7,629,224 £760,820 £122,513,111

Commercial value Residential Open market 1 Bed 2 Bed 3 Bed 4 Bed Open market 1 Bed 2 Bed 3 Bed 4 Bed TOTAL Less sales cost

Construction costs Fees Contingency Post contract costs Marketing CIL NHBC

£7,866,520 £250,000

Rent free period Office Retail Rent lost in letting peiod Empty rates Site

£69,156,683

Monthly total Interest Cumul

£69,156,683 £0 £69,156,683

£8,116,520 £461,045 £77,734,247

£0 £518,228 £78,252,475

£0 £521,683 £78,774,159

7.00% 13

8.00% 14

9.00% 15

8.00% 16

7.00% 17

6.00% 18

5.00% 19

4.00% 20

4.00% 21

3.00% 22

3.00% 23

2.00% 24

£7,371,231 £1,105,685 £423,846

£8,424,264 £1,263,640 £484,395

£9,477,297 £1,421,595 £544,945

£8,424,264 £1,263,640 £484,395

£7,371,231 £1,105,685 £423,846

£6,318,198 £947,730 £363,296

£5,265,165 £789,775 £302,747

£4,212,132 £631,820 £242,198

£3,159,099 £473,865 £181,648

£2,106,066 £315,910 £121,099

Commercial value Residential Open market 1 Bed 2 Bed 3 Bed 4 Bed Open market 1 Bed 2 Bed 3 Bed 4 Bed TOTAL Less sales cost

Construction costs Fees Contingency Post contract costs Marketing CIL NHBC

£200,000

Rent free period Office Retail Rent lost in letting peiod Empty rates Site Monthly total Interest Cumul

£8,900,761 £816,754 £132,230,626

£10,172,299 £881,538 £143,284,462

£11,443,836 £955,230 £155,683,528

£10,172,299 £1,037,890 £166,893,717

£8,900,761 £1,112,625 £176,907,104

£7,629,224 £1,179,381 £185,715,708

£6,357,687 £1,238,105 £193,311,500

£5,086,149 £1,288,743 £199,686,392

£5,086,149 £1,331,243 £206,103,785

£3,814,612 £1,374,025 £211,292,422

£4,014,612 £1,408,616 £216,715,650

£2,543,075 £1,444,771 £220,703,496

Page | 64

2.00% 25

1.00% 26

1.00% 27

Commercial value Residential Open market 1 Bed 2 Bed 3 Bed 4 Bed Open market 1 Bed 2 Bed 3 Bed 4 Bed

-£3,873,034 -£7,199,753 -£9,503,999 -£5,745,655

-£85,615,908

-£26,322,440

£1,712,318

£526,449

£33,333

-£11,061,386 -£20,789,286 -£27,442,796

TOTAL Less sales cost

Construction costs Fees Contingency Post contract costs Marketing CIL NHBC

36 -£69,499,409

£2,106,066 £315,910 £121,099

£1,053,033 £157,955 £60,549

£1,389,988

£1,053,033 £157,955 £60,549 £33,333

Rent free period Office Retail

£433,235

Rent lost in letting peiod

£711,200

£33,333

£1,978,329

Empty rates

£2,844,799

£197,833

£1,375,601 -£1,306,275 -£195,871,889

£231,166 -£1,305,813 -£196,946,535

-£63,055,126 -£1,312,977 -£261,314,638

Site Monthly total Interest Cumul

£3,687,509 £1,471,357 £225,862,361

£1,271,537 £1,505,749 £228,639,648

£1,271,537 £1,524,264 £231,435,450

-£168,341,729 £1,542,903 £64,636,623

-£52,085,098 £430,911 £12,982,436

-£52,085,098 £86,550 -£39,016,112

-£50,940,664 -£260,107 -£90,216,883

-£52,085,098 -£601,446 -£142,903,427

-£52,085,098 -£952,690 -£195,941,215

Profit per cashflow Profit per appraisal Difference Interest per cashflow Interest per appraisal Difference

£822,426

£261,314,638 £44,316,796 £216,997,842 £21,985,134 £259,695,244 £237,710,109

Page | 65

10. Commercial Ground Rent Generally, if someone owns a long lease on a property in England and Wales have to pay rent to the freeholder or landlord of the property, this is known as ground rent. Commercial ground rent is an individually negotiated transaction, tailored on bespoke terms by the tenant and investor. Specifically is an annual payment for the inclusion of the commercial part of a land element in a development proposal. The freeholder stands to receive two things, the rent payments for the next 125 years and the ownership of the property when the lease expires. The ground rent calculations involve an accounting technique to adjust for 'the time value of money', by reducing the payments by a percentage for every year they are in the future. (Isaac, 1996)

Each fixed annual ground rent payment of £70,700,000 is deemed to be worth 5.09% less for every year it is in the future. As things stand, in 125 years’ time the lease will expire and the property would simply 'revert' back into the ownership of the freeholder. The value of this is calculated by taking the value with the freehold, which will be £51,000,000 and discounting it by 5% (the reversion rate) 125 times cumulatively, for the 125 years left on the lease. This gives us a reversion value of £3,535,000. As a result, it is needed to pay the freeholder the amount of £57,916,173.85. In the following table is shown the calculation of commercial ground rent. Table 53: Commercial ground rent calculation

Rental value of finished building

£69,499,409

Rental value of site

Site value commercial

Rentalise at 5%

Portion to freeholder

£70,700,000

£3,535,000

5.09%

Page | 66

Maximum

Residue of rental value

10%

5% £3,474,970

Capitalise at 5% Payment to freeholder

£69,499,409 £57,916,173.85

Page | 67

11. Sensitives analysis Sensitivity analysis: consideration of the variable factors in the residual valuatio0n. When we look at the residual valuation we can see that there are a number of variables providing inputs to the valuation. A discussion is attempted here of the variables, their nature and the degree of variability.

11.1 Sensitive analysis relating to the period before the site purchase There are many factors that can affect the site value and the total profit of a development, as there are many uncertain areas, which should be tested to get a general overview of them. The five main factors, which can have further positive or negative impacts on land value and total profit, are the retails rent prices, office rental prices, residential sale prices, commercial yields and building costs. All these figures are not 100% accurate as it can increase or decrease according to an uncertain situation. The following tables show the effect of these figures upon site value and total development profit. The effect of retail rental prices First, an increase of 10% in retail rental prices will lead to an increase of 3% and 1.35% in land value and total profit respectively. Specifically, the land value will rise from £64,800,000 to £66,700,000 and the total profit from £44,316,796 to £44,914,220. On the other hand, if there is a 10% reduction in retails rental prices will be followed by a decrease of 3% and 1.35% in land value and total profit respectively. Table 54: The effect of retail rental prices

Retail

Site value

Rate

Profit

Rate

rental

Profit

Rate

on cost

price £38.29

£64,800,000

10% decrease

£34.46

£62,800,000

-3% £43,719,373 -1.35% 18.71%

10% increase

£42.12

£66,700,000

Retail rental

£44,316,796

18.72%

price

3% £44,914,220

1.35% 18.74%

-0.07% 0.07%

Page | 68

The effect of office rental prices Second, an increase of 10% in office rental prices will lead to an increase of 3% and 1.19% in land value and total profit respectively. Specifically, the land value will rise from £64,800,000 to £66,600,000 and the total profit from £44,316,796 to £44,843,870. On the other hand, if there is a 10% reduction in retails rental prices will be followed by a decrease of 3% and 1.19% in land value and total profit respectively.

Table 55: The effect of office rental prices

Office

Site value

Rate

Profit

Rate

Profit

rental

Rate

on cost

price £36.59

£64,800,000

10% decrease

£32.93

£62,900,000

-3% £43,789,722 -1.19% 18.71%

10% increase

£40.25

£66,600,000

Office rental

£44,316,796

18.72%

price

3% £44,843,870

1.19% 18.74%

-0.07% 0.07%

The effect of residential sale prices Third, an increase of 10% in residential sale prices will lead to an increase of 22% and 8.05% in land value and total profit respectively. Specifically, the land value will rise from £64,800,000 to 79,000,000 and the total profit from £44,316,796 to £47,883,103. On the other hand, if there is a 10% reduction in retails rental prices will be followed by a decrease of 3% and 1.19% in land value and total profit respectively.

Table 56: The effect of residential sale prices

Residential

Site value

Rate

Profit

Rate

sale prices Residential

£217,228,108 £64,800,000

Profit

Rate

on cost -

£44,316,796

18.72%

sale prices 10%

£195,505,297 £50,500,000

-22% £40,750,490

-8.05% 18.61%

-0.60%

£238,950,919 £79,000,000

22% £47,883,103

8.05% 18.82%

0.52%

decrease 10% increase

The effect of commercial yields Page | 69

Fourth, an increase in commercial yield to 7.00% will lead to a decrease of 19% and 7.32% in land value and total profit respectively. Specifically, the land value will rise from £64,800,000 to £52,500,000 and the total profit from £44,316,796 to £41,073,491. On the other hand, if there is a 10% reduction in retails rental prices will be followed by a decrease of 3% and 1.19% in land value and total profit respectively. Table 57: The effect of commercial yields

Commercial

Site value

Rate

Profit

Rate

yield

Profit

Rate

on cost

5.00%

£64,800,000

decrease

4.00%

£75,500,000

17% £47,154,689

6.40% 18.80%

0.39%

increase

7.00%

£52,500,000

-19% £41,073,491

-7.32% 18.63%

-0.50%

Commercial

£44,316,796

18.72%

yield

The effect of building cost Fifth, an increase of 10% in building costs will lead to a decrease of 17% and 0.55% in land value and total profit respectively. Specifically, the land value will fall from £64,800,000 to £53,900,000 and the total profit from £44,316,796 to £44,074,004. On the other hand, if there is a 10% reduction in retails rental prices will be followed by an increase of 17% and 0.55% in land value and total profit respectively.

Table 58: The effect of building cost

Building cost

Site value

Rate

Profit

Rate

Profit

Rate

on cost Building cost

£105,303,300

£64,800,000

10% decrease

£94,772,970

£75,600,000

17%

10% increase

£115,833,630

£53,900,000

-17%

£44,316,796 £44,559,589

18.72%

0.55% 18.85%

0.65%

£44,074,004 -0.55% 18.60%

-0.65%

The worse and the best scenario In conclusion, the worse scenario will happen if there is a 10% decrease in retails rental prices, a 10% decrease in office rental prices and a 10% decrease in residential sale prices, while there is a 10% increase in the building costs and the commercial yield is 7%. In this case, the land value will reduce from £64,800,000 to £24,900,000 and the total profit will cut down from

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£44,316,796 to £36,464,225. In the best scenario will happen if there is a 10% increase in retails rental prices, a 10% increase in office rental prices and a 10% increase in residential sale prices, while there is a 10% decrease in the building costs and the commercial yield is 4%. In this case, the land value will jump from £64,800,000 to £105,400,000 and the total profit will rise from £44,316,796 to £52,372,074. Table 59: Worse and best scenario

Site value

Rate

Profit

Rate

Profit

Rate

on cost £64,800,000

£44,316,796

18.72%

Worse scenario

£24,900,000

-62%

£36,464,225

-17.72% 18.33%

-2.10%

Best scenario

£105,400,000

63%

£52,372,074

18.18% 19.01%

1.54%

11.2 Sensitive analysis relating to the period after the site purchase

An increase in the interest rate from 8% to 12% will lead to a dramatic increase of 62.50% in interest per cash flow and a slight decrease of 5.26% in profit per cash flow. On the other hand, a decrease in the interest rate from 8% to 6.5% will be followed by a significant decrease of 21.17% in interest per cash flow and a minor increase of 1.78% in profit per cash flow. Table 60: The effect of interest rate

Interest

Profit per cash flow

Rate

Interest per

Rate

cash flow Interest

8.00%

£261,314,638

£21,985,134

decrease

6.50%

£265,968,101

1.78%

£17,331,671

-21.17%

increase

12.00%

£247,574,197

-5.26%

£35,725,575

62.50%

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12. Risk Analysis Property development as any other financial transaction, which use of cash has very many risks, financial and non-financial. Risk is the possibility that the actual return on investment will be different from its expected return. (investopedia.com, 2018) Some risks must be considered in this development. Economy has a crucial impact on the viability of a development. Changes in economy could create a recession and it could be decreased dramatically a propertyâ&#x20AC;&#x2122;s value. Financial crisis create low employment rate and this has as result lower need for office spaces. Moreover, the lower income decreases the demand on shops as people reduce their expenditures.

Furthermore, an Increase in interest rates would have as result increased holding expenses. It is well and good to be able to service a loan and make repayments when interest rates are at all-time low, but you must always factor in the possibility of rate rises over the life of your development. After all, it may be two to four years before you complete your project and realise enough profit to be able to refinance and pay out your development loan. There is the risk after 2 years a developer has borrowed too much money on lower interest rates and then as rates started to increase substantially, he could no longer meet their loan commitments. Moreover, there is the risk of increasing construction costs due to increases in the cost of building materials or labour. For reasons such as increases in interest rates, cyclical movement in the real estate market and depressed or unstable general economic conditions resulting in lowered property values or increased holding costs until properties are sold.

In property development, there is risk come from uncertainty surrounding estimates of current levels of costs and revenues and future cost and price inflation introduces scope for justifiable variations in the estimation of the key inputs into a development appraisal. Development appraisals are uncertain because there is uncertainty in assumptions. Different valuers conclude different findings due to different data input in their appraisals. Risk in development can be defined in terms of the extent to which the actual outcome diverges from expected outcomes. It can only be eliminated by fixing all of the input variables at the date of the valuation. (Baum, 2009)

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Development appraisals are uncertain because there is uncertainty in assumptions. Different values conclude different findings due to different data input in appraisals. Risk in development can be defined in terms of the extent to which the actual outcome diverges from expected outcomes. All valuation method contains numerous point estimates of the input variables and mistakes can quite easily be compounded where these variables are brought together in additive, multiplicative and possibly interdependent relationships. (Byrne, 1996) There are several risks such as increases in construction costs, delayed completion, reduced investor demand leading to an increase in the investment yield, reduced occupier demand leading to delays in letting or sale of the property, decreased rental and capital value; and increases in the cost of borrowing money. (Isaac, O'Leary , & Daley, 2016)

In addition, a downturn in the economy will affect investment and occupier markets. Reduced demand from investors will cause the investment yield to rise and reduced demand from tenants will cause rents to drop. The combined effect may lead to a substantial shift in the view of development viability. It is important therefore to mitigate the influence of the key downside risks as much as possible and potential ways

Furthermore, another one risk that reflect to the current development is the unwilling of owner to sell the property. In addition, the subject area there is a big amount of new homes that are now under construction or will start their erection the next years. As result, next years will be in the market for sale a large amount of residential units and therefore there will be competition in sale of houses and this may make it difficult to sell housing of the present development.

The economy has a crucial impact on the viability of a development. Changes in the economy could create a recession and it could be decreased dramatically a propertyâ&#x20AC;&#x2122;s value. For example, a downturn in the economy will affect investment and occupier markets. Reduced demand from investors will cause the investment yield to rise and reduced demand from tenants will cause rents to drop. This will decrease significantly rental and sale prices in the area of the subject development. According to the above sensitive analysis, this affects dramatically the land value and the total profit of this project. A decrease only 10% has of all rental and sale prices could dramatically reduce the profit.

Furthermore, an increase in construction's prices would affect the profit of this development. Only 10% of increases in construction costs would fall the total profit of this development. In addition, there are several other risks such as delayed completion, reduced investor demand

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leading to an increase in the investment yield, reduced occupier demand leading to delays in letting or sale of the property, decreased rental and capital value; and increases in the cost of borrowing money.

Moreover, an Increase in interest rates would have as result increased holding expenses. It is well and good to be able to service a loan and make repayments when interest rates are at an all-time low, but you must always factor in the possibility of rate rises over the life of your development. After all, it may be two to four years before you complete your project and realise enough profit to be able to refinance and pay out your development loan. There is the risk after 2 years a developer has borrowed too much money on lower interest rates and then as rates started to increase substantially, he could no longer meet their loan commitments.

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13. Forward Funding Funding a property development project with the appropriate method of finance is important. The funding method can affect significantly the availability of cash aiming to support the initial investment, cash flow in the whole construction period and the overall profitability of the project. There are many ways to finance a property development but the most appropriate for the current proposed development is a mixture of equity and debt funding. dept would be provided by a third party lender with the ''forward funding'' method. (Isaac, 1996)

Forward funding is the method of development finance, which comprises of a pension fund or other institutional investor agreeing to provide short-term development finance and a development is financed by an investor and the developer receives payment once the scheme has completed. . This can happen only at the start or at an early stage of the development process. This method of development finance has many advantages compared to other methods. (Cadman & Topping, 2002)

The institutional investor aiming to find a better investment compared to this that it is possible to find on the standing market. The investor agree to buy a development that is has not been built yet and has the opportunity to acquire the investment with a better yield than in case of the development had been built already. Moreover, in this case require no or a lvery little bank financing.

From the developerâ&#x20AC;&#x2122;s perspective, using a forward funding structure there are potential cash flow benefits because of the developer would receive cash from the sale of the land before the completion of the development and the ultimate disposal of the property. Furthermore, the developer might receive a profit related payment from the borrower after the consummation of the development. This extra payment usually calculated from the investment value of the completed development excepting the total costs. In addition, this technique of funding reduces the developerâ&#x20AC;&#x2122;s exposure to risk and can be tax efficient in case it structured properly.

From the institution perspective, provide a slightly higher yield than a ready-made investment. Additionally, in case of a rise in rents during the development period, the institution shares in the rental growth.

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The only disadvantage of this method is that the developer might lose profit. In the case of price appreciation during the construction phase, the developer might miss out profit because development profits fixed at the start of the process.

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Conclusion To conclude, the subject site gives a great opportunity to invest in a property development project that will deliver 8 sizable retail units, two-floor open office spaces and 348 new residential units, including 122 new affordable homes. This proposed mix used development provides the much-needing type of developments to the location and Old Kent Road area as a whole. Moreover, it is quite clear from the development appraisal that the proposed mix-used scheme of retail, offices and residential is highly viable. The residual appraisal has shown that the development is highly viable as it can provide the client with a profit of ÂŁ44,316,796 this is equal a 19% of the cost of development. Although the achievement of these values is based on many investigation and analysis of the current market, there are still many sensitive issues in the market that can affect these values and prices. It would be recommended that all stakeholders such as developers, development finance banks, contractors, estate agents, legal advisors, and council officials come up with agreed actual values and prices.

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