Midleton Industrial Estate Redevelopment - Guildford Borough Council
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Executive Report
Ward(s) affected: Onslow
Report of Director of Community Services
Author: Gaurav Choksi
Tel: 01483 444515
Email: gaurav.choksi@guildford.gov.uk
Lead Councillor responsible: Nigel Manning
Tel: 01252 665999
Email: nigel.manning@guildford.gov.uk
Date: 17 July 2018
Midleton Industrial Estate Redevelopment
Executive Summary
Midleton Industrial Estate, which is in the Council’s freehold ownership, has significant
potential for redevelopment over the medium term. The Council has decided to develop
the site in phases as and when leases expire or are determined.
The Executive approved a business case for the redevelopment of the Midleton
Industrial Estate on 24 January 2017, as part of the 2017-18 capital programme report.
This report outlines progress with the delivery of the project, including the current spend
and the works completed to date as well as the remaining scope of works to be delivered
during 2018-19 and 2019-20. The Executive is asked to approve the transfer of £3.65
million from the provisional capital programme to the approved capital programme in
order to complete phase one of the redevelopment.
Recommendation to Executive
(1) That the sum of £3.65 million be transferred from the provisional capital
programme to the approved capital programme to enable the continuation and
completion of the design and construction of phase one of the Midleton Industrial
Estate redevelopment, as detailed in this report.
(2) That the Director of Community Services, in consultation with Lead Councillor for
Finance and Asset Management, be authorised to progress the design and
construction of phase one.
Reason for Recommendation:
To progress the redevelopment of Midleton Industrial Estate site in phases to enhance
both the capital value and rental income of the Council’s property assets.1. Purpose of Report
1.1 The purpose of this report is provide the Executive with an update of the Midleton
Industrial Estate redevelopment programme carried out so far in delivering phase
one of the project, and to seek approval for transfer of the necessary funds to
continue to progress and deliver the project.
2. Strategic Priorities
2.1 The recommendations support the delivery of the following priorities from the
Corporate Plan 2015-2020:
Our Economy
The project will enable the Council to meet the following priorities:
Providing economic leadership to deliver sustainable and proportionate growth
Maintaining and growing our business base
Providing for high quality commercial land and buildings
Improving skills and employment opportunities
Unlocking the economic advantages of urban regeneration
Our Borough
The project will enable the Council to meet the following fundamental themes:
Economic leadership to deliver sustainable and proportionate growth
Maintaining and growing our business base
High quality commercial land and buildings
Improving skills and employment opportunities
Unlocking economic advantages of urban regeneration
It will also contribute to the following priorities:
Ensuring an attractive, competitive, multi-faceted and vibrant town
Sensitively integrating development into existing communities
Our Environment
The project will enable the Council to meet the following priorities:
Reduce energy and water use
Clean and attractive borough
Protecting and improving our environment
Your Council
The project will enable the Council to meet the following priorities:
Ensuring long-term financial stability and sound financial governance
Improving value for money and efficiency in service delivery
Increasing income from commercial services
Maximising the value derived from our property portfolio
Improving access to our services and enhance the experience of customers3. Background
3.1 In accordance with the Council’s Asset Management Framework, the Council
continues proactively to look at opportunities to enhance both the capital value
and rental income of the Council’s property assets.
3.2 Midleton Industrial Estate lies adjacent to Guildford Business Park and, over the
medium term, has significant potential for redevelopment.
3.3 The entire Midleton Industrial Estate comprises around 5.7 acres. The Estate is
divided in accordance with the long leaseholds previously granted.
3.4 The units are typically 1970s warehouses of steel portal frame construction, most
of which have roofs containing asbestos. Most of the Buildings are approaching
the end of their economic life.
3.5 There has been a strategy in recent years to buy back units, which were let on
long leaseholds to enable redevelopment for continued industrial use. The plan
is to demolish the older style units to create suitable development plots when the
majority of current leases expire, from 2020 onwards.
3.6 The Council has now decided to bring forward the scheme and develop the site
in phases as and when leases expire or are determined.
4. Current demand/supply for industrial space
4.1 Current occupier demand is focused predominantly on small space requirements
i.e. up to around 5,000 sq. ft. (465 sq.m). Generally speaking, the smaller the
size, the higher the demand. It follows therefore that the highest demand is for
units up to, say, 2,000 sq. ft. (185 sq.m.) with the next most popular size category
being 2,000 – 3,000 sq. ft (185 - 280 sq.m).
4.2 Land for industrial development is in short supply in the Borough. This, coupled
with the lack of new development in recent years, means that existing industrial
buildings are also in short supply. There is a low vacancy rate with stock
shortages apparent across all the size ranges.
4.3 The shortage in supply, particularly of small units, can be further demonstrated
by the lack of availability in respect of the Council owned Enterprise Units. The
three schemes (Foundation Units and Enterprise Units at Slyfield and Enterprise
Units at Ash Vale) are virtually at 100% occupancy. These schemes comprise a
total of 58 units, but current availability is virtually nil.
4.4 The Council’s advisers Lambert Smith Hampton (LSH) have said there is more
than sufficient demand to support a small unit scheme on site to provide a broad
range of unit sizes from say 1,000 – 5,000 sq. ft. (93-465 sq.m.).
4.5 LSH have advised that depending on what development plots come forward, the
Council give consideration to medium range units circa 5,000 – 10,000 sq. ft.
(465-929 sq.m.) again, constructed in a terrace or terraces and a plot suitable for
building of up to 25,000 sq. ft. (2,323 sq.m.) as a single unit, or possiblydeveloped with flexibility in mind that it can be divided into two units of 12,500 sq.
ft. (1,161 sq.m.).
5. Current position
5.1 A design team has been appointed and a masterplan prepared for the
redevelopment programme. The rate at which the estate can be developed will
depend to some degree on the current lease arrangements.
5.2 Units 3, 4, 5 and 11 are, or can be, available through discussions with the current
leaseholders and have therefore been placed in the first phase of the
redevelopment programme. Regard has also been had to:
Condition of the existing buildings
The need to optimise the estate layout
5.3 Various surveys, ranging from ground to ecological surveys, have been
completed to support the project moving onto the stage at which a planning
application can be submitted.
5.4 The current proposal for phase one is to deliver the development in two stages;
which will enable the improved layout identified in the masterplan to be achieved.
Stage 1: Unit 11
Stage 2: Units 3, 4 and 5
5.5 The intention is to commence the procurement exercise for the construction
partner in parallel with the planning application to enable the redevelopment to
start at the earliest opportunity.
5.6 There are on-going discussions with affected tenants with a view to minimising
disruption. The nature of the project means, for some, that this is unavoidable.
6. Financial implications
6.1 There is £200,000 in the approved capital programme and £14.86 million in the
provisional capital programme. Officers request the transfer of £3.65 million from
the provisional capital programme to the approved capital programme, to enable
the delivery of phase one of the project.
6.2 The anticipated cost allocation is set out below:
Construction costs £2,880,000
Planning and associated statutory fees £300,000
Project risk contingency £470,000
Total £3,650,000
6.3 The project risk contingency will not form part of the construction contract and will
only be used if circumstances warrant.6.4 The investment will improve the estate generally and will not only make it more
lettable but also generate a long-term and more sustainable income stream.
6.5 Officers have carried out a high-level financial appraisal of the proposed
development based on both the projected costs and income streams reflecting
current market conditions. The appraisal indicates an initial yield of 6.3% and an
IRR of 6.8%. These returns are in-line with the remainder of our portfolio and the
local market for such properties. The development will also increase the capital
value of our overall commercial property portfolio.
7. Equality and Diversity Implications
7.1 No specific equality and diversity implications have been identified.
8. Consultations
8.1 Officers have discussed the scheme with existing tenants of phase one. There
will be formal consultation as part of the planning process.
8.2 Ward councillors and the lead Councillor support the redevelopment programme.
9. Risk management implications
9.1 The project attracts a range of risks, which include:
Planning risk
The scheme will require planning permission. Officers will engage with planners
as part of the pre-application process.
Construction cost
The project quantity surveyors have allowed a suitable contingency in the cost
allocation.
Market risk
The volatile nature of the market makes it difficult to predict accurately the level
and response to an individual procurement exercise.
Possession
Whilst we have possession of the majority of the phase one properties, we
cannot be certain at this stage that all the properties will be available to allow the
first phase to be delivered in one stage. The alternative will be to construct the
project in two stages, with the second stage starting in 2020.
Letting of properties
This is considered to be a low risk having regard to current demand patterns. We
will look to pre-let the units so far as possible.10. Legal Implications
10.1 Legislative changes contained in the Energy Act 2011 make it unlawful to let
commercial properties with an EPC Rating of F or G (i.e. the lowest ratings) from
April 2018. The units at Midleton range from D to F. Two units fall outside the
lawful categories and will require improvements to bring them up to the standard
should the development not proceed.
11. Human resource Implications
11.1 The project will be managed within our existing resources with the support of
external consultants, which has been allowed for in the budget.
12. Summary of Options
12.1 The only other option is to do nothing in which case the existing units continue to
deteriorate costing the Council further money to comply with lease terms. The
units are reaching the end of their economic life and will require significant
investment if the Council wishes to re-let the vacant properties. The units are not
that attractive and should the Council wish to re-let them, the level of rent to be
expected will be lower than new units.
13. Conclusion
13.1 Redevelopment of the Midleton Industrial Estate will create a more secure asset
and investment for the Council by providing much needed industrial stock. It will
encourage new businesses into the area and allow existing businesses the room
to grow. It is therefore officers’ recommendation to transfer the budget required
from the provisional capital programme to the approved capital programme to
enable continued delivery of the project.
14. Background papers
None
15. Appendices
Appendix 1: Layout Plan
Appendix 2: Bid for Funding: Redevelopment of Midleton Industrial EstateYou can also read
