The East Midlands How Much Profit Does a Developer Need?


Intali specialises in property investment and development.


I have recently been banging on about what the rise in the BoE base rate and gilt yields are doing to investment values.


Now it is time to take a hatchet to the development market, and especially development viability for planning.


One of our main lines of business is development viability and, as you can imagine in this market, we are busy trying to persuade councils that sometimes, schemes cannot afford the contributions required by their local plan policies - policies that were generally set in far more benign economic times.


Of course, higher borrowing costs add to development costs. Viability is also affected by increasing build costs and falling end-use values.


But, having had many disagreements with surveyors acting for councils over the last six months, it really is time to consider the minimum level of profit required to persuade a developer to develop in the current market. I don’t think it’s 20%.


Developer Profit for Plan Making Paragraph 018 of the Viability PPG says:


“For the purposes of plan making, an assumption of 15%-20% of gross development value (GDV) may be considered as a suitable return to developers to establish the viability of plan policies”


Guess how many local plans reference a developer profit higher than 20%? Correct!


Developer Profit for Scheme Specific Viability Paragraph 007 of the PPG allows for scheme-specific viability assessments


“where a recession or similar significant economic changes have occurred since the plan was brought into force”.


So, at this point in time, scheme-specific viabilities can be submitted on every scheme everywhere. But, in agreeing the viability, how many assessors for local authorities will agree to a developer profit of more than 20%? Correct again.


Comparing Returns Developers have choices. Invest money in a high-risk development for a maximum return of 20%, or invest elsewhere. Perhaps a high-interest savings account?


Suppose you brought a site two years ago when the BoE base rate was 0.1%. A developer profit of 20% would be attractive in that environment.


But now, having finally got planning permission (yes, it does take that long), the 20% developer profit has to be compared against a risk-free base rate of 5.5%.


Compound that over a two-year development period, and you are choosing between a high-risk developer profit of 20% and a risk-free return of over 11%. What would you do?


If the government really want to deliver housing, they are going to have to look at this very carefully.


Griffen Secures Major Warehouse Letting at Griffen Park, Leicestershire


-Highly sustainable, speculatively developed, Grade-A unit is first to be delivered as part of Griffen’s c. 900,000 sq ft big box Golden Triangle logistics hub-


Griffen, the UK-focused industrial and logistics investor, developer and asset manager, has agreed a 128,048 sq ft letting for the parts distribution of a significant global manufacturer, for Unit 1 at its Griffen Park logistics park in Desford, Leicestershire. The tenant has signed a 10-year lease for the entire institutional quality warehouse, at a headline rent of £8.40 psf.


Employing lower carbon construction methods, the highly sustainable property is rated BREEAM Excellent and has an EPC A rating, with features including rooftop PV panels and the use of recyclable materials throughout. The specification also includes 12.5m eave heights and 144 car parking spaces.


The property is the first to be delivered by Griffen’s in house development platform as part of the Griffen Park masterplan, which also includes a 103,000 sq ft unit with similar sustainability features, suitable for single and multi-tenant use and due to practically complete [this month]. Planning permission has also been secured, with the infrastructure already in place, for two further units, ranging from 170,000 sq ft to 510,000 sq ft. Griffen Park is adjacent to Griffen’s Desford Campus, which comprises three logistics warehouses totalling 1,651,229 sq ft.


Desford is a premier logistics location in the East Midlands Golden Triangle, with nearly 1 million economically active people living within 20km, and 95% of the UK population accessible within a 4.5 hour HGV drive. The region benefits from a plentiful labour supply, with manufacturing, transport and storage accounting for 18% of area’s jobs, whilst the nearby East Midlands Airport is the UK’s largest pure cargo facility.


Griffen was advised by C&W, JLL and DHP & Trowers and Hamlins. 64


Apprenticeship Scheme Marks Investment in Future


Prominent Leicestershire commercial property specialist Andrew + Ashwell is investing in the future with the recruitment of apprentice surveyor Conrad Gray.


Locally born Conrad is the youngest member of the A+A team, having recently completed A-Levels. He has joined the workforce at the London Road, Leicester, office to assist and gain experience with agency and property management.


Setting his sights on a professional career in commercial property, Conrad has also begun a Chartered Surveyor Degree Apprenticeship (Real Estate) on a part-time basis at Nottingham Trent University. This is linked with the Government Apprenticeship Scheme and is a first participation for A+A. The scheme follows a similar career pathway taken by A+A senior Directors Malcolm Grayson and Mike Allwood, with learning achieved both on and off the job.


Conrad aims to study one day a week on day release to degree level, followed by a short period to the Royal Institution of Chartered Surveyors (RICS) qualification.


As Conrad’s training mentor, Malcolm Grayson, A+A Partner, said: “We are pleased to welcome Conrad onto our growing team. At A+A we have evolved a broad age profile mix of staff and having Conrad starting at 18 with us will be a positive step in future years, not only for him, but also for the company.


“Undertaking a part time degree is, I feel, one of the very best ways to enter the profession. Conrad will gain valuable experience at an early age to really complement and enhance his academic studies. If the scheme works well for us, we may well bring in another apprentice in the following years.”


COMMERCIAL PROPERTY MONTHLY 2023


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