The course focuses on property development and the appraisal techniques used to identify financial
viability. The course exposes students to an advanced development appraisal which includes cash flow
modelling and scenario testing. By the end of the course students will be able to identify and explain
the roles of key stakeholders in the development process such as developers, local authorities,
landowners, funders and end users. The relationship between the sustainability agenda and property
development will also be explored in the course.
Scenario:
The King’s Cross site is 26 hectares of brownfield land north of King’s Cross and St Pancras stations (see
attached plan). The London Borough of Camden has granted outline planning consent on the site to
enable a major mixed?use development which includes offices, retail, restaurants, leisure, residential
and university buildings. The largest single use is offices which are being built in blocks on various plots
across the site. Momentum has established itself at King’s Cross (www.kingscross.co.uk) where The
University of the Arts, London campus is now occupied and leading companies such as Google are going to move in. Some of the office blocks have been completed and are occupied, others are at various
stages of construction while a start has not yet been made on some plots. One of the un?developed plots
is T3 which will be the focus of the project.
The developer is King’s Cross Central Limited Partnership which is led by Argent Group plc. In the project scenario, the Partnership wishes to spread the risk by disposing of some of the peripheral plots to other developers. The developer that you work for: Sustainable Estates has become interested in purchasing Plot T3 on Canal Reach as the plot has planning consent for 12,077 m2 (130,000 ft2) of net office space over 8 floors. Your line manager has asked you to undertake a two stage feasibility study for Plot T3. The first part is a market assessment to try to establish the extent of demand for offices in this location. The second part of the feasibility study will be a development viability and funding report which, amongst other things, will recommend the maximum bid that Sustainable Estates could make to buy Plot T3.
Part 1 Market assessment
Part 1 requires a report which assesses the extent of demand for offices on the site. The report should
not be a lengthy description of the planning framework or the history and characteristics of King’s Cross,
although these topics could feature as minor elements.
A market assessment should objectively evaluate the market conditions for the type of development
envisaged (in this case offices) by going beyond the platitudes sometimes found in promotional brochures where risk is conveniently ignored. A good market assessment will show research endeavour by identifying and interpreting a range of sources such as RICS market surveys, recent deals and market
reports produced by companies such as Cushman and Wakefield, JLL and CBRE.
Following the analysis of this type of data, the report should try to conclude by advising on the strength of demand for offices in this locality, what rental value and yield could be expected, what type of office tenants might be attracted to this location and whether incentives would be needed to secure lettings.
The individually produced market assessment should be in report format, well structured and properly referenced. Reports should not rely on large chunks of copy and pasted material from web?sites, to avoid that you you include as an appendix. As this signifies a thoughtless approach and there could be plagiarism consequence. The assessment criteria and weightings for the market assessment report are as follows.
Assessment criteria for Part 1: Market Assessment Reports
-Relevance and focus on the topic.
-Quality and quantity of data obtained.
– Critical insight, degree of analysis,
interpretation and objectivity demonstrated.
– Legibility, grammar, spelling, punctuation,
format, structure, presentation, referencing
and professionalism of the report.
– Credibility and clarity of conclusions reached
and recommendations made.
___________________________________________________
Advice on writing a Market Assessment Report (Coursework 1)
Document format and presentation
Adopt report format with a title, contents list and numbered sub-headings. Begin with an introduction to explain the remit of the report and what will be discussed. The report should lead up to conclusions and recommendations and there might be appendices to show a site plan and other items which do not easily fit within the report (however the appendices should not be too voluminous). There should be referencing using the Harvard method, as the report should be quoting or citing a variety of sources.
Structure and content
Following the introduction there should be a section describing the site and its location attributes and some background on what is proposed at King’s Cross. Is this a well located site with connections to the transport network and which might be able to attract international, national and local occupiers? Or is it a backwater site where it will be difficult to attract anything but small local companies? This is descriptive scene-setting content and should not dominate the report.
Include a section which discusses the general state of the economy and whether there is evidence to suggest economic difficulties or a stable economy or that despite Brexit there are signs of growth. Property developers obviously prefer to launch their schemes when the economy looks as if it will be stable or promises to grow. They will have more chance of achieving early lettings at competitive rents in those circumstances as there will tend to be business confidence and business expansions. The demand for office space is derived i.e. it depends on how well businesses are doing, so if businesses are contracting then the demand for office space will be deflated.
A part of the report should consider the demand for office space which can come from three areas of the market.
The first type of demand comes from market `churn when leases expire or where break clauses are exercised enabling companies to seek new premises.
These companies would probably be looking for offices in a better location and/or with cheaper rents and/or a more modern and sustainable building which might be consistent with a company’s corporate social responsibility. Is King’s Cross a location that could offer companies currently located at Canary Wharf or in the City or West End these kinds of benefits? Kings Cross is part of what is called London’s mid-town and historically it was not a destination associated with large multi-national companies looking for large headquarters office space. However the pace of change at King’s Cross is beginning to challenge this perception.
The second type of demand comes from `in-movers which are companies coming from elsewhere in the UK or overseas and who do not yet have a presence in London. Is King’s Cross a destination that they would look at?
The third type of demand comes from companies expanding so that they need more space.
This can happen where a company retains its main office but needs additional space, sometimes for more rudimentary functions. Is King’s Cross a locality that could provide this for companies in a cost effective manner?
The main focus of market assessment is based on the first and second type of demand while you can brief write on the third type of demand that is the attention should be based on the first 2 type of demand.
Try to conclude this section of the report by commenting on how hard it might be for agents to secure office lettings at King’s Cross. Would inducements such rent free periods be needed and if so, what sorts of duration might the rent free periods need to be?
There should be a section in the report which looks at the supply of office space coming onto the market and which will pose competition for the site. Supply has two dimensions: the quality of the supply i.e. is there alternative space of similar or better quality to King’s Cross available elsewhere in London and is there a high quantity of supply i.e. are there other large developments coming on stream who are also looking for occupiers.
There will be a section which looks at what other developers are thinking about the London office market. This is provided by the relevant sections in leading property company annual reports such as those produced by British Land, Hammerson, Land Securities, Derwent London, SEGRO and Great Portland Estates. Look at one to see what these experienced developers are saying about the prospects for office development.
There should be a section in the report which contains comparable market evidence set out in a simple table and which identifies rental values achieved for comparable offices (new and refurbished) and yields. This is obtainable from CoStar’s Focus Suite where a lease and sales comparable searches can be conducted. You can select date parameters and a geographic search zone in order to identify the rental value per m2 and yield % which could realistically be achieved for the King’s Cross office development. Try to identify how long property was on the market before being let, as this provides a guide on how long it might take to fully let a large office building at King’s Cross. This information will be used in Part 2 of the project when an appraisal is undertaken.
The discussion in the above sections of your report should be supported by data, graphs and market sentiment i.e. quotes from property market experts which must be attributed i.e. referenced. This information can be gleaned from market surveys produced by RICS, Jones Lang LaSalle, Cushman and Wakefield and CoStar. You should also try to find information onthe office property market in London from Property Week and Estates Gazette. Wherever you find your data and opinion, you must avoid just copying large chunks of `market speak without
adding your own interpretation of the significance of what it is being said. Poor quality reports will just cut and paste with no interpretation, whilst good quality reports will be more selective and analytical by explaining what the data and opinions imply for King’s Cross.
It would be valid to bring together the sometimes conflicting evidence into a table of what might be termed positive and negative signals or even a SWOT analysis if that is preferred. This might help in drafting some conclusions and recommendations. These should try to confirm whether this is or is not a good time to develop offices speculatively at King’s Cross.
If development appears to be a prospect then should a long void period be allowed for and/or will rent free periods be needed to lure occupiers to King’s Cross. Would a new office development on Plot T4 at King’s Cross result in staggered multi-letting, rather than a one-off letting of the whole building to a single occupier?
The principles summarised above are discussed in more depth in Chapter 4 in Guy, S. and Henneberry, J. (2002)
Development and Developers New Perspectives on Property, Blackwell Science and in Chapter 8 of Reed,
R. and Sims, S. (2014) Property Development, 6th Edition, Routledge.
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