The developer of Battersea Power Station has published details of the scary challenges being faced in the delivery of the ambitious £9bn scheme, which has now reached a “critical stage of delivery” with Phases 1, 2 and 3 all on site simultaneously.
In a planning statement to Wandsworth Council, BPSDC said “site-specific challenges flow from the entirely unique nature and scale of the site and the masterplan scheme”, adding that “over thirty years of vacancy and failed redevelopment bids stand as testament to the challenge that this building presents”.
To accompany an application to modify the Section 106 Agreement, examples are given of works that have been “significantly more onerous” than those envisaged by the original masterplan permission, including the asbestos risk in the building being far worse than originally thought; the higher-than-expected cost of deconstructing and replacing the chimneys; “previously unidentified obstructions” affecting piling and foundation works; and the difficult nature of carrying out major excavations in close proximity to the Grade II* listed Power Station itself.
Along with all that, BPSDC admitted the timing of the 4,360-unit mega-scheme – during a period of wider economic uncertainty – has implications in terms of rising construction costs and “unstable” values, adding that the nature and scale of the project requires specialist work over a long period of time, making it even more exposed to macro economic changes.
The developer said it had “become necessary to re-examine the delivery priorities with a view to easing the financial burden…and allowing the delivery of the development to continue in accordance with policy aspirations”, and has proposed some “modifications” to the project, summarised as follows:
- Bringing forward earlier and providing greater certainty on the timing of the delivery of the 386 affordable homes located within Phase 4a
- Moving the 103 affordable homes currently proposed in Phase 3b to Phase 5 (or another appropriate Phase as agreed); and
- Introducing a review mechanism triggered prior to the occupation of the remaining 453 residential units to determine the amount of affordable housing that the scheme can viably deliver in addition to the 386 units on Phase 4a.
A separate document lays bare the current financials, detailing how the IRR, the measure of profitability originally targeted at 20%, has fallen to under half that figure after three appraisals by independent assessor BNPPRE since 2010.
A viability review in September 2016 concluded that the schemewide ungeared IRR was 10.14%; using the same model, but taking into account the proposed mods and current costs and values, the latest baseline appraisal gives an IRR of 8.23% (bringing Phase 4 forward earlier and relocating Phase 3 affordable housing to Phase 5 would take it up to 9.04%).
The submission added: “The proposed modifications to the S106 Agreement are a specific response to the financial pressures facing this scheme as a consequence of its unique circumstances. This report demonstrates that the scheme financial position has not improved since the Masterplan was implemented, the IRR has faced increasing challenges. The immediate priority is the delivery of the Power Station and the other key elements of the early phases of the masterplan.”
The launch of Phase One back in 2014 saw 75% of the 866 “Circus West” units snapped up in less than a week, with buyers paying a £2,500 booking fee plus 10% deposit to secure a deal. BPSDC remains upbeat on the sales front, but the new-build market in London has hit some hefty headwinds since then.
Well-documented stamp duty hikes have ramped up transaction costs for many buyers and prices have tumbled as a result, with the new-build market looking particularly vulnerable. Indeed, figures out just yesterday suggest the total number of unsold resi units under construction in London has now risen to the highest level on record.
According to Molior data seen by Bloomberg, 27,000 of the capital’s new homes – either currently being built or already completed – are yet to find a buyer, up from 25,000 in Q4 2016. Molior hasn’t officially published the figures yet, but apparently that’s the highest total seen since the data resource started keeping track in 2009. Going by the current rate of under construction sales – which has fallen y-o-y by 7.8% to 5,470 – that backlog will take 1.2 years to clear, the report added.
Designed by Rafael Vinoly and backed by a Malaysian consortium of Sime Darby Bhd, SP Setia Bhd Group and the Employees Provident Fund, the transformation of the iconic former coal-fired power station was approved in 2010 and is due for completion in 2025. Big news was announced in September last year, with Apple confirming it would be setting up its new 1,400-strong London headquarters across six floors of the central boiler house, making it the single largest office tenant. Once complete, the formerly derelict 14-hectare site will house 25,000 people and have created 20,000 jobs, along with generating investment of around £20bn into the UK economy, according to BPSDC.
Main Image:Brian Pike’s Sand Painting of Battersea Power Station (1983) CC-BY-2.0