City&Country: Battersea project in the spotlight

London’s Battersea Power Station (BPS) is a structure that has been immortalised in pop culture. Many around the world may have seen it in movies, televised events and, most memorably, on the cover of Pink Floyd’s 1977 album Animals.

But that is nothing compared to seeing the real thing. City & Country had the pleasure of being taken on a three-day visit of the BPS site in early September.

Standing in front of the structure, one is struck by how massive and imposing it is. With four white chimneys that seem to touch the sky, the building has an odd beauty about it and is, as many have labelled it, a masterpiece of the Art Deco era.

It is hard to imagine that in about 10 to 15 years, the structure and its 39-acre site will be transformed into a modern, cosmopolitan town centre by Battersea Power Station Development Co (BPSDC) — a consortium comprising S P Setia Bhd, Sime Darby Group and the Employees Provident Fund.

BPSDC became the official owner of BPS on Sept 4. The site was acquired, following an open tender, for £400 million through special purpose vehicle Battersea Project Holding Co Ltd (BPHC), in which S P Setia and Sime Darby have a 40% stake each and the EPF the remaining 20%.

BPS is an integral part of the Nine Elms Opportunity Area master plan, which aims to regenerate the 204-acre Nine Elms. The power station — listed as a heritage building — will be the heart of the development. The four chimneys will be retained in the restoration, upon which the structure will house a shopping mall and residential units, among others.

What is different now?
Perhaps the most asked question by Londoners and foreigners alike is whether the new owners of BPS will succeed.

A chat with Londoners reveals a degree of scepticism. Take Amy, 40, who walks past the BPS site daily on her way to work.

“This is not the first time. A few have tried to redevelop the site and failed. Don’t get me wrong, I want to see the land put to good use but whether it will work this time remains to be seen,” she says.

Indeed, BPS has changed hands many times. The last owner was Ireland-based Real Estate Opportunities plc, which had acquired the site from Hong Kong development company Parkview International. The number of unsuccessful attempts at redevelopment includes a proposal for an industrial-based theme park.

This time around, Phase One of the £8 billion development will comprise some 800 apartments and 110,000 sq ft of commercial space occupied by retail outlets, a theatre and office studios. The site, which has a gross development value of £1 billion, has a 999-year lease. The indicative pricing of the apartments is £900 to £950 psf.

A preview of Phase One will be held in November in Kuala Lumpur to be followed by a soft launch in early 2013 in London and an official launch by April. Construction is scheduled to start in the second half of 2013. A Malaysian investment analyst who has visited the site spoke to a few British fund managers who said they were concerned about the proposed selling price of the apartments in Phase One

“While apartments across the bridge in Chelsea are expensive, not all of Chelsea is priced the same. The people I spoke to at this point would prefer to stay in Chelsea rather than across the river since the prices are more or less the same, and from what they see now, the Battersea/Nine Elms area is not as vibrant,” says the analyst who prefers not to be named.

However, that is not to say the sceptics will not change their minds.

“They have seen too many failures. There are also concerned about the development of the proposed Northern Line, which can drag on for a while. Like the BPS site, they want to see the actual commencement of work so that they can know for sure that this time it is for real,” the analyst says.

The proposed Northern Line Extension (NLE) from Kennington, with stops in Nine Elms and BPS, has been approved and is in the final stage of confirmation. The analyst is confident Phase One will sell as Central London is an international market and buyers are likely to come from Asia.

Knight Frank Malaysia executive director Sarkunan Subramaniam stresses that Nine Elms is not an inferior location.

“It is a transitional area undergoing an urban redevelopment programme. I would consider it an upcoming market. I see it as Mont’Kiara or Segambut. Remember what Mont’Kiara was like two decades ago? Look at it today,” says Sarkunan.

According to a real estate agency in the area, apartments in the completed Chelsea Bridge Wharf, a project by Berkeley Group, are going for £800 to more than £1,500 psf. Chelsea Bridge Wharf is located next to BPS, separated by a railway track.

Earlier this year, Ballymore Group launched the first phase of its Embassy Gardens at about £1,000 psf. Embassy Gardens is a residential project located not far from BPS and has seen a take-up of nearly 50% of which 85% are foreign buyers. It is interesting to note that buyers from Malaysia, Singapore and Hong Kong make up about 60% of the foreign buyers.

Also in Nine Elms is Berkeley Group’s Riverlight apartments, which sold for £1,000 psf. The riverfront development is located not far down the river from BPS. The highest priced launch in Nine Elms is the 50-storey St George Wharf Tower, which sold for £1,500 psf.

Across River Thames is the more upscale Chelsea where apartments along the river can go up to £2,000 psf. Units at Lots Road Power Station by Hutchison Whampoa — a redevelopment similar to BPS’ that is located at the far western end of Chelsea — are selling for an average of £1,150 to £1,600 psf. Sarkunan sees the possibility of BPS setting price benchmarks and pushing Nine Elms to another level in the London property market.

Critical success factors
Maybank Investment Bank (MIB) and CIMB Research analysts, who were part of the three-day tour, returned home more confident that the BPS project will do well.

MIB cites the shareholders’ financial strength and an approved feasible planning consent as two of the key factors in its report. It says the consortium has the financial firepower to bankroll the project through its 10 to 15-year development period.

MIB says earlier fears of high upfront costs have been laid to rest with the confirmation that the £212 million NLE contribution will be paid for in stages, according to the planned eight phases, while the conservation cost of BPS is estimated at £61 million. The conservation cost will be incurred in Phase Two, which will likely kick off after 2014.

The NLE is being funded by developers’ contributions in the Opportunity Area and is the first privately financed Tube project in Central London. The planning consent is of equal importance as it greatly shortens the planning time and holding cost.

S P Setia’s president and CEO Tan Sri Liew Kee Sin told the media during the tour of the site that a planning consent is similar to a development order in Malaysia. But unlike in Malaysia, planning consent in the UK is detailed and can take up to five years to prepare and gain approval.

“We are happy about the approved master plan. In fact, when we bid for the project, we were very pleased that it came with a planning consent. When the consent is given to you, you already have the approval to build. So, our concern today is making sure Phase One is developed as soon as possible,” Liew said.

The approved 8.1 million sq ft gross floor area (6.3 million net saleable area) is double the original four million sq ft. With a viable net plot ratio of 4.76, the higher saleable area enhances the project’s bankability, reports MIB. It adds that the low land cost will protect the consortium against any possible downturn in the London property market. Land cost, the NLE contribution and conservation cost add up to £664 million or 8.3% of the project’s GDV.

S P Setia and Sime Darby also have a large customer base of Asian buyers they can tap, says MIB. It expects demand from UK buyers to remain weak in the near term due to the country’s troubled economy. MIB notes that about 50% of buyers for S P Setia’s property launches in Singapore and Australia were its existing customers from Malaysia.

CIMB Research believes that if BPS is priced competitively, it will do well. The large commercial component (43%) of the 8.1 million gross built-up and the 1.22 million sq ft of retail/entertainment/F&B/community/leisure space will enhance the vibrancy of the area. This will be particularly true during the day due to the working population. At the same time, it would be convenient for the residents.

The location of the popular 200-acre Battersea Park next to BPS will be an added advantage, drawing the interest of families, nature lovers and the health conscious, CIMB says in its report on the site visit. The park offers sports facilities, scenic lakes and a children’s zoo, among others.

Capital appreciation
CIMB Research notes that several property consultants have predicted an appreciation of more than 50% in residential value within four to five years in BPS and Nine Elms.

Besides the strong boost provided by the Northern Line Extension to the office and retail components of BPS, says CIMB Research, the redevelopment is one of only two projects in Nine Elms with direct river frontage. Both MIB and CIMB Research agree that the solid political backing for the infrastructure project has added to their optimism. Construction on the NLE is scheduled to start by 2014 and is expected to be completed by 2020.

In a light-hearted moment during a cocktail function celebrating the completion of the sale on Sept 5, Boris Johnson, the Mayor of London and chairman of Transport of London, placed a bet on whether the BPS team or the NLE team will break ground first. He also pledged his support for the BPS redevelopment and the NLE.

“For all these reasons, we believe residential properties in the BPS project will eventually command a premium over other developments in Nine Elms. The only question is, how big a premium and by when? But we share the sentiment of BPS’ developers that it is crucial for the project to take off on a strong note as they cannot afford to be overconfident about a project of that size or overprice its first launch,” reports CIMB Research.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 928, Sep 17-23, 2012