Tuesday 11 June 2013

"Promise of a new age for landowners at 'scruffy end' of Oxford Street"

From The Evening Standard:

The arrival of Crossrail at Tottenham Court Road and the redevelopment or construction of 220,000 square feet of new shop space — equivalent to a large department store — mean the east end of the street will be transformed by 2020, experts said...

Retail consultant David Kenningham is advising the New West End Company on the fresh strategy for the stretch between Poland Street and St Giles Circus...

However, he said the opening of a giant Primark store in 2010 and the scheduled launch of one of Zara’s biggest UK outlets later this year have begun to spark interest among foreign retailers looking for a central London location. Shopper footfall has increased by a fifth since Primark opened.

Most large brands have ignored the eastern end since the closure of its last department store Bourne & Hollingsworth in 1983. Rents are now between a third and 50 per cent lower than at the upmarket “Selfridges end” west of Oxford Circus.

OK, the Primark thing is "agglomeration", we've covered that. The main driver here appears to be the new Crossrail station at Tottenham Court Road.

Let's do a bit of maths, this is all ball park, but it gives you an idea of the magnitude.

1. The stretch which will benefit most is about half a mile long x two sides = one mile. Let's ignore side streets and assume the prime retail space is the first 100 feet back from the pavement, that means about half a million feet of retail space (might or might not include the 220,000 mentioned in the article).

2. Rents on the western stretch (Oxford Circus to Bond Street) are as much as £800 per sq foot per year.

3. If the rents on the eastern stretch double to catch up with rents on the western stretch, that means extra potential rents of £200 million a year. That might be overcooking it a bit, but those are (or will be) four or five storey buildings and the rental value of the upper floors will increase as well.

4. Applying a multiple of 20 to that £200 million (or discounting that £200 million at 5% per annum) gives us a one-off increase in the value (as measured by selling prices of land) of £4 billion.

5. For sure, to some extent this is cannibalisation - the rental value of retail location elsewhere might fall - but the overall impact of new transport infrastructure is always positive (whether it always justifies the expense is another matter).

6. The projected capital cost of the Crossrail project is £16 billion, let's assume that it is funded the same as the rest of London Transport, i.e. half fares and half out of taxes/subsidies, that leaves £8 billion upfront capital cost to be paid by "the taxpayer".

7. So the one-off land value uplift on this small stretch alone is sufficient to pay half the upfront cost; there'll be another station opposite Bond Street where the land value uplift will be another £4 billion, and there will be another thirty or so stations from end to end, where the land value uplift will be much smaller, but always a positive number.

8. The other way of calculating this is that the extra rental value of the areas which benefit - call it £500 million a year - will be enough to pay the interest and principal repayments of the £8 billion loans required to cover the upfront costs. Apparently the potential ticket revenues have already been 'securitised' to cover the other half.

9. Now, scratch your head and ask yourself who might be reasonably expected to pay the taxes to fund the construction?

UPDATE: Dave W reminds me that the London Mayor decided to levy a supplement on Business Rates (the next best tax after LVT), to raise £4.1 billion, which is most of the London taxpayer's "share" of the cost.

But Business Rates only applies to commercial premises, not residential; the supplement is London-wide; and the supplement only applies to the largest premises. So not very much like LVT at all, then.


Bayard said...

ISTR that the only time a landowner offered to pay for improvements to the underground, they were turned down (Canary Wharf). Someone was frightened that a precedent might be set, no doubt.

Mark Wadsworth said...

B, yes, that's one of the tales that we land value taxers tell each other round the camp fire, but the offer was quite genuine, it's just that the government of the time appears to have considered not high enough, but instead of taking what was on offer, they turned it down flat and took nothing.

Graeme said...

and remember Mark, this whole area has been ground zero for 2 years now.....once there were shops and pubs and now there is a huge hole in the ground and massive inconvenience to everyone who travels above ground in London....a substantialnumber of people.

Graeme said...

I reckon 5 nyears for this area to0 recover...if the estimates of completion are real....;)

Mark Wadsworth said...

G, no, that's the top of Charing X Road which is negatively affected, Oxford St itself is barely affected.

And it won't take 5 years to recover, it will take a few months and then everything will be back to normal.

Bayard said...

"but instead of taking what was on offer, they turned it down flat and took nothing."

That does seem stupid, beyond even the stupidity of the governing class. There must have been other forces at work. I stick by my theory.

Physiocrat said...

Why is this being discussed? Of course Joe Public should, and will, cough up, as usual. All is for the best in the best of all possible worlds.

Physiocrat said...

In my view Crossrail is a bloody stupid scheme. Another tube from Paddington to Stratford on the same alignment would have given 110% of the benefits at less than 50% of the cost. At the Paddington end it could have gone to Hammersmith and perhaps eventually to Heathrow by separating the Uxbridge and Heathrow branches of the Piccadilly line. At the Stratford end it could have joined end-on to the Jubilee Line,thus it would have had two stations at Bond Street.