This is the published version Adair, Alastair, Berry, Jim, McGreal, Stanley, Poon, Joanna, Hutchison

27 Pages·2003·0.78 MB·English

This is the published version

Adair, Alastair, Berry, Jim, McGreal, Stanley, Poon, Joanna, Hutchison,
Norman, Watkins, Craig and Gibb, Kenneth 2003, Benchmarking urban
regeneration, RICS Foundation, London, England.

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Copyright: 2003, RICS Foundation
benchmarking urban regeneration
The research was carried out by a team from Universities of Ulster, Aberdeen and Glasgow. University of Ulster:
Alastair Adair, Jim Berry, Stanley McGreal, Joanna Poon. University of Aberdeen: Norman Hutchison, Craig Watkins.
University of Glasgow: Kenneth Gibb. The research benefited from a steering group which provided advice
and guidance during the course of the project. The members of the steering group were: Chris Brown (Igloo)
— Chairman, Stephen Brown (RICS Foundation), Tina Golton (Office of the Deputy Prime Minister), Tony Key (Cass
Business School and Investment Property Databank), Paul McNamara (Prudential Property Investment Managers)
Wendy Russell-Barter (Office of the Deputy Prime Minister), David Shevill (Office of the Deputy Prime Minister).
THE SUPPORT OF THE ECONOMIC AND SOCIAL RESEARCH COUNCIL (AWARD NO. R000239291), THE OFFICE OF THE DEPUTY
PRIME MINISTER AND THE RICS FOUNDATION IS GRATEFULLY ACKNOWLEDGED IN UNDERTAKING THIS RESEARCH PROJECT.
THE VIEWS EXPRESSED BY THE AUTHORS ARE RICS FOUNDATION
NOT NECESSARILY THOSE OF THE PUBLISHERS.
NEITHER THE AUTHORS, THE RICS FOUNDATION,
THE ESRC NOR THE ODPM ACCEPT ANY LIABILITY
FOR ANY ACTION ARISING FROM THE USE
TO WHICH THIS PUBLICATION MAY BE PUT.
RICS FOUNDATION, 12 GREAT GEORGE STREET,
LONDON, SW1P 3AD, UK
T: [phone]
E: [email protected]
W: WWW.RICS-FOUNDATION.ORG
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BENCHMARKING URBAN REGENERATION
BENCHMARKING URBAN REGENERATION
STEPHEN BROWN
PHOTOGRAPHY
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BENCHMARKING URBAN REGENERATION
BENCHMARKING URBAN REGENERATION
CONTENTS
Key findings 4
Introduction 6
What do we know at the moment? 9
Methodology 13
Results 15
Conclusions and recommendations 21
References 24
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KEY FINDINGS
The regeneration of significant parts of cities and The key findings from this research are as follows.
towns has been a policy objective of successive
governments over the past two decades. • The results stemming from this study show that
Numerous evaluations of initiatives and schemes have investment property in regeneration areas can out-perform
been commissioned to assess the impact of regeneration national and local benchmarks. The analysis demonstrates
as part of the review of policy. Value for money studies that over the long-term perspective regeneration areas
offer significant investment opportunities. These findings
have quantified outputs and outcomes in terms of
challenge perceptions regarding investment returns. The
a series of physical, financial and social indicators,
message to major institutional investors from this research
however information on property performance and
is the need to reconsider strategies regarding the potential
investment trends has suffered from the relative lack
of property within regeneration areas.
of transparency in regeneration areas. Indeed weak
and confused market signals in regeneration areas • Complementary evidence is apparent from the two
methodologies. Both demonstrate the superior performance
have perpetuated misconceptions regarding investment
of regeneration property in recent years relative to
returns and risk which has often led to regeneration
recognised benchmarks. The total returns approach
opportunities being by-passed, notably by some of the
highlights the property market downturn of the early
largest institutional investors.
1990s as marking a step-change. The beacon approach
This research seeks to address this information gap by indicates a major yield shift in regeneration areas in the
short to medium-term.
the establishment of a performance index for urban
regeneration property returns in order to provide a • The study demonstrates that the systematic under-pricing
benchmarking facility for the investment decision- of regeneration markets on the part of the property
making process. Benchmarking plays a fundamental industry, a symptom of the information deficit, has been
role in both private and public decision-making in terms based on incomplete evidence. Potentially the absence of
returns information has been detrimental to investment
of facilitating performance measurement and informing
strategies in relation to regeneration areas and the pricing
investment strategy.
of investment opportunities.
In benchmarking the investment performance of
• Retail property is shown to perform extremely
regeneration property, the study employed two
well within regeneration areas, which appear to be
techniques utilised for the wider commercial property
particularly suited to shopping centres and retail
market namely a total returns index and a beacon warehousing investments. It seems that restriction on
approach to the determination of a rental index and out-of-town development arising from PPG6 and the
average yield monitor. sequential test may have benefited regeneration areas.
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• For office and industrial property, the differences are less indicators but lacked information on property investment
pronounced, but in the case of the total return indicator returns.
they still outperform national benchmarks.
• The finding that regeneration areas can offer vibrant
• On the basis of risk assessment similar findings prevail. property markets and new development/investment
The perception that regeneration areas have significantly opportunities has wider relevance to the economic
greater levels of risk is shown to be misplaced. competitiveness of UK cities and investability objectives.
Performance figures suggest that the level of risk faced in The ODPM work on Core Cities, several of which
regeneration areas is not significantly different than the are included in this study, has raised concerns over the
market as a whole and in certain instances is lower. competitiveness of these cities relative to European
counterparts. As regeneration areas frequently offer the
• Regeneration performance can vary on a city by city basis.
most significant opportunities within these cities the
The analysis indicates that the uplift in the investment
potential clearly is there to attract investment, raise value
performance of regeneration areas occurred later in
and increase competitiveness. The policy agenda therefore
particular locations. For example in Tyne and Wear
needs to be consistent and focussed to facilitate delivery of
investment returns only started to increase significantly
these goals.
in the latter part of the 1990s. However, the key issue
is that the performance trend over the long-term is • The research highlights that property market data is
consistent across the group of urban areas considered in under-utilised by both the private and public sectors.
this study. The former possess key information on all the significant
physical and financial variables required for index
• The significance of this research is the quantification
construction but often is not held in a systematic fashion
of property investment returns from regeneration areas
that facilitates analysis. Likewise, the public sector holds
which previously has not been available to investment
potentially valuable information but again not in a
institutions and decision makers.
format that is always conducive to facilitate this type
• From a policy perspective the research is of enormous of analysis. Collectively these data are under-utilised
relevance in confirming the maturing of locations resources.
that have received high levels of public sector support
and indicating the effectiveness of regeneration policy
mechanisms in creating sustainable urban environments
capable of meeting private sector investment goals. As
government agencies are increasingly looking for greater
private sector participation in regeneration the success of
previous and current policy mechanisms is fundamental.
Furthermore, this study provides the missing component
not found in other value for money studies which
have concentrated upon physical output and economic
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INTRODUCTION
embraces more holistic perspectives such as economic been a desire to attract private investment into
and social improvement. regeneration with subsequent evaluations frequently
Background
Urban regeneration seeks ways to improve focussing upon a range of indicators such as leverage
In 1998, the Royal Institution of Chartered Surveyors disadvantaged places and the lives of people who to quantify the private sector contribution. However,
published a report, ‘Accessing Private Finance’ which live and work there. Regeneration activities are there are relatively few empirical studies that have
looked at possible reasons why private finance was varied and may reflect joined-up holistic or relatively directly addressed the nature and form of private
not attracted to urban regeneration areas. One of the less integrated programmes of physical, social and sector investment in regeneration. Exceptions include
key findings from this work, which was funded by the economic change. For instance, Government across the work of Adair et al (1998) and to a certain extent
Joseph Rowntree Foundation and carried out by the the UK prioritises social inclusion and the reduction that of Adams et al (2001). The Joseph Rowntree
University of Ulster, was that private sector investors of exclusion, be it economic, physical isolation or the Foundation Report, representing a landmark on the
lacked confidence as to the financial returns that they general inability to participate in normal urban life role of private investment in regeneration, concluded
could receive. With the increasing importance that real opportunities. At the same time, regeneration and local that the experience of investors in urban regeneration
estate investors place on being able to benchmark the enterprise agencies seek to develop real estate and indicates the achievability of high returns. It suggests
investment performance of their assets, the research infrastructure in order to attract new investment. This that the decision-making of non-investors may be
indicated that this lack of performance data acted as a is partly because it is believed that there are positive based on misconceptions. In particular, institutional
real and significant disincentive. wider regeneration spillovers attached to economic investors are shown to apply higher thresholds
To see if this could be resolved, a further research development. It may be argued that effective strategies regarding their involvement in urban regeneration.
project was commissioned, to explore: to encourage private investment in run-down areas, if It is evident that the need for urban regeneration
suitably co-located in complementary social policies, arises as a consequence of market inefficiency,
• whether the investment returns in urban regeneration
are essential to the long-term redevelopment of including failure in property markets. Policy makers
areas are comparable with those in other urban areas
depressed, derelict or otherwise disadvantaged urban implicitly seek to address weaknesses in property
• whether it would be possible to construct an urban places. Property investment is therefore reasonably markets through a range of initiatives aimed at
regeneration real estate index, comparable with existing viewed as a necessary condition for economic developing the conditions that might attract private
property investment performance indices, that would regeneration and in turn as a first order condition for sector involvement and ultimately sustain normal
enable the investment returns in urban regeneration areas wider integrated area renewal. private market processes. A first strand of policy
to be benchmarked against investment properties in other The holistic approach emphasised in the Urban relevance relating to this project is based on the
areas Task Force report, produced by the Department principle that better information on property market
of the Environment, Transport and the Regions performance in the urban regeneration sector will
Why the need?
in 1999, advocated successful urban regeneration assist in the development of an evidence base that
Quite simply, the task of achieving urban regeneration
founded upon strong democratic local leadership, can improve the targeting and design of policy
in our towns and cities cannot be carried out with
public participation and the use of public finance to interventions ultimately aimed at delivering better
public funds alone – private capital is necessary.
attract increased private investment. The importance functioning property markets. Moreover, the targets
In our earlier study1, we defined urban
placed upon private finance and investment is central and outcomes of regeneration programmes must
regeneration as the process of reversing economic,
to effective regeneration. Since the 1977 Urban be aligned to the specific needs of the area/projects
social and physical decay in our towns and cities where
White Paper, Policy for the Inner Cities a raft of concerned. This requires the development of asset-
it has reached that stage when market forces alone will
regeneration policies, initiatives and incentives have based regeneration with the capacity to provide
not suffice. Successful regeneration frequently seeks a
been implemented with different priorities placed revenue streams to sustain private sector development
tangible outcome in the form of real estate. However
upon physical, economic, environmental and social and investment.
it is important also to recognise that regeneration
regeneration. At the heart of many initiatives has
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A related strand of policy relevance is based on the are reluctant to invest in regeneration areas in spite of and those who perceive that this is not possible.
premise that regeneration initiatives have in fact already the desire by government and regeneration agencies to However, our previous study does indicate that for
attracted significant volumes of private sector investment increase institutional involvement and attract private both investors and non-investors in regeneration there
and hence contain the schemes/properties that should finance to regeneration areas. Rather private sector is broad consensus concerning the range of factors
be included in a performance index. The core of the involvement frequently has been driven by property which would facilitate the mitigation of risk and the
research, therefore, focuses on the range of initiatives development and investment companies, often of local enhancement of return. The challenge for regeneration
that have been at the centre of UK urban regeneration origin, which seem to adopt less risk-averse strategies policy makers and those agencies seeking to stimulate
policy and in particular those mechanisms which have than institutional investors (Adair et al, 2003). greater private sector investment is how to bridge the
generated property outputs entering the investment Residential property in the UK is starting to be gap in perception between investors and non-investors.
market. The establishment of a regeneration index will recognised as an investment asset but data sources One way in which this may be resolved is through the
enable policy makers to gauge the outturn performance of are even more fragmented than for the commercial provision of enhanced information on regeneration
policy-on initiatives and the success of urban regeneration property market. From a development perspective investment thereby illuminating return and risk
in enlisting institutional funding to regenerate areas residential property is extremely important and and facilitating a more accurate and comprehensive
characterised by market failure. However this raises many mixed-use schemes in regeneration areas have understanding for decision-making.
further issues relating to the dynamics of the market. It is a substantial residential component but from our
How do we measure property
likely that over time, some regeneration-assisted areas will investigation in the urban areas studied, a significant
performance?
start to become part of the established/prime market. percentage of this stock is sold for owner-occupation
whereas that held for investment purposes is often by Currently property market information is mainly
The property investment market
private individuals. The level of corporate investment produced for prime markets as these are the locations
in the United Kingdom
in residential property within regeneration areas with least perceived risk and hence are the markets
Property as an investment provides institutions with appears to be low in cities outside of London with little that are most attractive to institutional funds. The
diversification benefits within a mixed asset portfolio knowledge of investment return. importance of benchmarking of returns has been
in which real estate has to compete with other asset Evidence from the literature suggests that the clearly established by such researchers as Karen
classes, primarily equities and bonds. Key criteria lack of rigorous and consistent measures/signals of Sieracki3, with two main methodologies employed
in the decision making process and in determining market performance in regeneration locations has in index calculation. Investment Property Databank
allocations across the respective asset classes are acted as a major deterrent to the redevelopment of (IPD) use a total returns approach involving capital
performance based measures of expected return and brownfield sites and has had a detrimental impact value growth and rental appreciation minus spending
risk. on the wider regeneration agenda. Authors such as whereas CB Hillier Parker employ a synthetic
Since the mid 1980s the value of investment Paul Syms2 emphasise the confidential nature of most approach based upon standardised property
property in the UK has grown considerably, with property transactions in the UK with limited access descriptions with valuation points in most major
many of the properties owned by institutional to such information. This scenario is exacerbated urban areas. In this study, we have used what is called a
investors being in prime market locations. Property in regeneration areas due to fewer transactions and ‘beacon approach’ which is based on the methodology
investment in the UK and in particular institutional therefore less market evidence. Such conditions of employed by CB Hillier Parker, and a total returns
funds are heavily focused upon the prime commercial uncertainty are not conducive to property investment approach that seeks to compare regeneration
markets (retail, office and industrial) for which decisions performance against national benchmarks produced
transaction evidence, although partial, is best The problem of information transparency and by IPD.
developed. In contrast evidence for secondary, resulting uncertainty in urban regeneration investment The total returns methodology applies IPD’s
tertiary and regeneration markets is more fragmented. is amply demonstrated by the perception gap between standard method of market analysis. Total return
Consequently it appears that institutional investors those investors who have achieved anticipated returns is considered by IPD to be the target measure for
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