£3.7m for Glasgow's commercial property sector

22 Jan 2009

Glasgow City Council is planning to bring into force a range of measures aimed at protecting the city's once-booming commercial property development sector from falling victim to the credit crunch, The Herald has learned.

In Glasgow's version of a national government-style economic stimulus package, the city plans among other measures to make available to developers £3.7m in stopgap funding and it has also proposed to temporarily ease up on its oft-times notorious bureaucracy.

The recommendations, which are to be presented for approval before the council's executive committee on Friday, also involve putting in place a series of "mechanisms for land disposal" that include "outright sales" of land for development as well as various forms of council-developer partnerships, according to documents seen by The Herald.

If approved, the action plan is expected to come into effect immediately.

In a recent council report, it was estimated that there is currently around £4.6bn worth of property development in the city either under construction or in the planning process.

However, as the credit freeze continues to bite amid the persistent chill in lending from banks, and as job cuts remain rampant as businesses retrench, and empty office space becomes increasingly difficult to fill, growing legions of developers are either withdrawing completely from land purchases for proposed projects or deferring them until the economy recovers.

Triggered by the worst economic turmoil in decades, commercial property values in Scotland are estimated to have slipped 20% over the past year, thus aggravating an already precarious situation.

George Ryan, council executive member for development and regeneration, noted in his report to be presented this week before the executive committee this week: "There is, for the first time in several years, an indication that a number of projects will remain in the pipeline, rather than move forward to 'under construction', until property conditions improve."

The report also noted that projects which had been expected by now to have been under construction but have since stalled include several office developments in the International Financial Services District, a retail project in Easterhouse and a raft of residential developments across the city.

In his report, Ryan added: "There is growing evidence that developers in a range of property market sectors are either withdrawing from or delaying/deferring proposed land purchases for their future development pipeline as a result of commercial finance available to fund land purchases and site development.

"A number of potential land sales by the council have already been affected by the withdrawal of the proposed purchaser or by requests to review the terms of the sale."

Meanwhile, industry observers expect no improvement this year or next.

Steve Inch, Glasgow City Council's executive development and regeneration director, confirmed that the council had noted a significant fall in the number of planning applications in recent months, foretelling a potentially disastrous extension to slowdown in property development over the next few years.

To finance its action plan, which is expected to be in place for at least three years, council officials want to dip into the city's £37m Better Glasgow Fund - normally reserved for regeneration projects, such as lighting, heritage buildings and greenspace initiatives - reallocating 10% in the first year, and up to 20% annually in the second and third year.

The range of mechanisms include fast-tracking planning applications and building warrants for key developments and those related to high employment, as well as staged and deferred payments on land purchases for these projects and to introduce "off-market" sales on a first-come, first-serve basis, thus suspending the often costly and time-consuming tendering process.

The idea behind off-market land sales is that developers would avoid costs normally associated with a competitive bidding process at a time when the property market is weak.

Inch said: "The is no question that developers are finding it difficult to get money from the banks, and so far about six major commercial developments in Glasgow have been stalled.

"What we want to do is mitigate this problem with a series of measures that will help the property development industry through this difficult time.

"We want to inject an element of flexibility into the process - whether that means helping fund an increase in developers' borrowing charges, more partnerships with developers, fast-tracking planning applications and building warrants, or speeding up the land-sale process, we want to help and will try to be as flexible as possible."

Asked if he felt £3.7m was enough to make a difference, Inch said: "We believe it will help at the margins and in many cases it will make the difference between developments going ahead or not.

"This is not something we have dreamed up. We still have a healthy flow of developers coming in and many of the measures being recommended have been suggested by the developers themselves."

Meanwhile, the council is also investigating the use of EU Jessica, or Joint European Support for Sustainable Investment in City Areas, to establish a new Glasgow Business Investment Fund.

Ryan added: "Our message to developers is that, in spite of the credit crunch, Glasgow is still open for business."

Reproduced with the permission of the Herald & Times Group

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