The Subplot | Freeport afloat, Lancaster rethink, Selfridges

Welcome to The Subplot, your regular slice of commentary on the North West business and property market from Place North West.

THIS WEEK

• Climb aboard the Liverpool Freeport as the venture’s board prepares for a spring 2022 launch
• Lancaster City Council’s new Green Party leader opts for realism over rhetoric at the long-awaited Canal Quarter development
• Why you – yes, you – would sell Selfridges, if you owned it

ANCHORS AWAY

Liverpool’s freeport gets moving

Liverpool Freeport is unlikely to be operational before spring 2022. But next week the pace picks up as the selection of a chair and board begins. This is what you need to know.

In the next few days, the hunt begins for the chair and board members of the new Liverpool Freeport joint venture. It is a big first step on a long journey to opening day for the plan that moots ‘customs sites’ in the port and ‘tax sites’ elsewhere, including at Peel L&P’s Wirral Waters, Langtree Group’s Parkside St Helens, Stobart’s 3MG Widnes and Peel L&P’s Port Salford.

Why so slow?

Close observers insist getting the project off the ground hasn’t been slow, just complicated. The big announcement in Chancellor Rishi Sunak’s March 2021 budget glossed over the fact that getting on the list of eight English freeports was the start, not the end, of a process. A business case has yet to be prepared, presented and agreed before the freeports can be designated. It is theoretically possible that some may not make it past this hurdle.

Slowly, slowly, catchy monkey

But before you get to the business case you need to create an organisation to take charge of writing it. How about one of the existing ready-made bodies, like the Liverpool City Region, local enterprise partnership or the local councils? No, the Government wants a new delivery body. The last three months have been spent working out how to do that. Whitehall is now happy that the Liverpool Freeport has a workable structure (if you’re interested, it will be an unincorporated joint venture between the councils, city region combined authority, and so on).

And then?

Then the new board needs a chair and members, which is where this week’s job advertisements come in. The idea is that the board will then lead the process of drawing up the business plan. They will need some external help, so consultants will be appointed – and that appointment process, too, will take a little while to work itself out.

And then, part two?

Yes there’s more, because this stage will involve meetings with HM Revenue & Customs (so far not very visible in this process, but ultimately vital if it is to work) and conversations with landowners. Somewhere down the line this results in a business plan everyone can buy into, and with which the Government can agree. Then, bingo, you have your Freeport.

No wonder

So now you can see why a spring 2022 operational date is more likely than the late 2021 date which HM Treasury suggested to Subplot. And what about that other little problem? The one involving 23 countries with roll-over trade deals with the UK where the customs benefits of the freeport’s won’t add up to much? See here for a good summary of the issue.

Also complicated

It took a longish email exchange between Subplot, the Department of International Trade and HM Treasury to establish that the terms of these free trade deals do not impact on the working of freeports. That’s good, but it’s not the end of the story. The big danger for Liverpool is that the forthcoming free trade deal with the United States does not include provision for Liverpool Freeport: given that 40% of UK-US trade goes through Liverpool, this is significant. Everyone hopes Liz Truss, the international trade secretary, realises how much it matters.

Desk-bound

The worry is that something, perhaps something important, falls between the cracks of the many government departments that have a hand in running the freeport process. Not only is there the Treasury, HM Revenue & Customs and the Department for International Trade, there is also the Ministry of Housing, Communities and Local Government. MHCLG advertised last week for a new Freeports Director on a salary of £120,000 (fancy it? you can apply here).

Going well

For Liverpool, the opportunity to talk about the freeport is a gift. Not only does it make sense of the city’s well-meant but confusing ‘SuperPort’ branding and adds rocket-fuel to the idea of port-centric development, but it gives the city’s marketeers something big and bold to talk about.

Opportunities

Simon Reid, head of sectors at Liverpool City Region’s growth company the Growth Platform, has been very closely involved in the process. “This has been a lot more positive than I originally thought,” he says. “The moment Rishi Sunak announced this my inbox was full of people from all over the world asking about the opportunities. The freeport has massively accelerated our promotion of the region – it has given us a significant platform.”

Tell us about the money

The freeport also gives the Liverpool City Region some of the weapons necessary to beat its global competitors. “We’ve had enterprise zones, but not had real hard incentives to offer business. But now with the freeport capital allowances, and National Insurance reductions, we’ve got something that might tip the balance.”

Failure is not an option

Freeports are the Government’s Big Idea for post-Brexit levelling up. When Subplot (9 March 2021) last took a trot round the subject, consensus was that the Government has so much political capital invested in the project, it cannot afford to let freeports fizzle out. That remains the widely-shared view. It is also widely accepted that the whole thing has been a bit improvised and not amazingly well thought through. Even so, there is enthusiasm.

Final thought

Yet there remains bashfulness about the competitive advantage freeports confer. This is odd. After all, the point of freeports is to give eight areas a competitive advantage over everywhere else. If that wasn’t the point, what on earth was it?  But saying out loud that you hope for a competitive advantage is considered to be a terrible breach of etiquette. Squaring the circle will be essential if freeports are to deliver their full economic benefits.

DRIVING THE WEEK

LANCASTER RETHINK CLAXON!

Three weeks after her appointment, the new Green leader of Lancaster City Council has opted for realism at the 16-acre Canal Quarter.

When Subplot last visited Lancaster (13 April 2021), the 16-acre Canal Quarter plan looked set to go nowhere fast. The city council had just set out an expensive list of cultural and sustainability objectives, declared it wouldn’t spend any money, and created a planning framework that ruled out developers doing most of the things that would have (quickly) raised the money the council refused to spend. More delays seemed inevitable to a scheme that has already taken 20 years.

All change, please

Since then the city’s byzantine four-party ruling coalition has undergone an internal coup: the former leader and relevant cabinet member have been ousted and a Green Party leader has been installed. The good news is that Cllr Caroline Jackson seems to grasp that the spend-nothing-but-expect-everything approach is probably a dead end. Jackson spoke exclusively to Subplot about where the Canal Quarter scheme goes next.

More about homes

The spur is the Covid-19 pandemic. Jackson explains: “We’re having a major rethink about how the centre of the city works, because Covid has pushed towns into a place where some could become very empty. The Canal Quarter is close to the city centre, and we want to work with [the council’s development partner] Riverstone Developments on their part of the site, as part of the city’s tourist and community offer. This site could bring the town together, and it is a very different one from previous iterations which were about creating a new commercial core.”

Community chest

Jackson seems to be suggesting a pivot more firmly towards housing on the Canal Quarter site, giving priority to (and perhaps adding to) the 500 homes already sketched in by the Avison Young and Planit-IE vision. “Post Covid I think there has to be a greater focus on housing. The council owns the land, so we can look at flexible solutions, shared ownership, different tenures. So there’s a renewed focus on housing that will make the business elements of the scheme more viable, and work alongside them,” Jackson says.

Money talks

The council is already talking to Homes England about funding, and may step in as a developer in its own right. Asked if the council will seek a development partner, Jackson says: “Yes, but we may do some development ourselves, for instance housing. But that isn’t imminent. We’re looking for developers that are clear about the kind of sustainable values we’re interested in.” It will be interesting to see what this means for the 190,000 sq ft of offices outlined in the existing vision document.

Distant friends

And how about Riverstone, the Midlands-based operation with legacy control of the 2.7-acre brewery part of the site? When Subplot spoke to all parties in April the mood music was scarcely encouraging (it was ‘we do our thing, they will do their thing’). Two months later and leader Jackson strikes a much warmer tone. “I’ve only seen one presentation from them so far, and overall it seemed like an interesting scheme, but it is still an early stage,” she says. “They seem to have an eye for commercial opportunities but with a sustainable core and although I’ve only been leader for a few weeks, they seem to be alongside our values.”

Besties?

Riverstone even comes in for some praise. Says Jackson: “They’ve done well to keep the development momentum going, so obviously have some commitment to the city. Making a success of the Canal Quarter is going to depend on good working relationships with developers, and with organisations like Homes England. We will need partnership a lot more that maybe we did before, because creating a thriving neighbourhood requires it.”

Deeper pockets

The third big change is over money. Jackson plays down the old top priority of avoiding a financial commitment. She nuances this as not so much a prohibition on spending, but as a warning against huge upfront risks on un-phased schemes. “I’m always very cautious about spending, but we are looking at viability and if we are going to support development. The issue is it has to be something we can manage, we’d be looking at a start [to phased development] in 2023, which means this wouldn’t be a huge amount of spending all in one go, which is what the previous policy was a reflection of. Instead, we’re looking at building out in stages.”

Realism bites

“I don’t think that means we’re not going to spend anything at all, but there are new opportunities in not having to fund it all upfront,” she says. “We can’t take the risks, the Government does not allow us to do that, but that doesn’t mean we can’t work alongside sustainable developers we want to work with. Maybe that means the council will have to pay – but its about how much, at what time, and at what speed. This won’t be the quick win some people thought it would be.”

Conclusion: The Canal Quarter remains a challenge, but by changing the tone Jackson is making it easier to recruit development partners that share the council’s sustainability agenda, and its vision for a new culturally themed neighbourhood. It’s a smart move.

IN CASE YOU MISSED IT…

Why sell Selfridges’ stores?

The 122,000 sq ft Manchester Selfridges store could be sold as part of a £4bn unsolicited takeover bid for the luxury retailer. After 15 months of lockdowns, why would anyone want to buy?

The answer is that family money is a powerful thing these days: it is sloshing round the world in amazing volumes believed to amount to about $4tn. The family offices that control much of this wealth have reached the point where (a) they think they deserve a treat, in the form of a trophy asset, and (b) they think the market is pretty much at the bottom, so they can get their trophy for a decent price.

Ritzy

For example, the UK’s biggest property deal of 2020 saw The Ritz hotel change hands for £750m in a deal with Qatari family investors. Now Selfridges seems to be the object of similar thinking. We don’t know who made the unsolicited £4bn offer, which includes £2bn for the real estate including 122,000 sq ft in Manchester, and the rest in London and Dublin.

Time to sell

On the other side, we’ve the Weston family, which currently owns Selfridges. Why would it want to sell? The answer is, for the same reason the Barclays brothers sold The Ritz – because Covid-19 has been unkind to the tourism trade on which both Selfridges and the hotel depends. There’s also the fact that now is a good time to take a profit (cash is king, after all, and the family could reinvest somewhere else ready to ride the next phase of economic growth). Having bought for £425m in 2003, the Westons can expect a hefty payday. That the head of the dynasty died earlier this year makes the timing even better.

Here it comes

All of which means the sale of Selfridges as a going concern looks very likely. Expect no big changes, but expect press pictures of the proud new owner any day. Credit Suisse is reported to be advising on the sale. Nobody concerned has made any public comments.

The Subplot is brought to you in association with Cratus and Bruntwood Works.