The Subplot | Infrastructure woes, flexspace, laboratories

Welcome to The Subplot, your regular slice of commentary on the business and property market from across the North of England and North Wales.

THIS WEEK

• Stuck on amber: Rail and road projects, including the long-awaited A66 dualling between Penrith and Scotch Corner, are at risk of failure
• Elevator pitch: your weekly rundown of who and what is going up, and who is heading the other way

STUCK ON AMBER

Big transport projects are waiting at the lights

The infrastructure investments that could open up the North’s economy and property markets are going nowhere fast.

Monday marked a big moment for Northern transport. Seven years after government said it truly meant to dual the A66 between the M6 at Penrith, and the A1M at Scotch Corner, an inspector submitted the relevant paperwork to the secretary of state. He has until 7 November to make up his mind. The road hasn’t been touched since the 1970s, and is one of the busiest freight routes in the land. In short, it matters.

Green is good

Will it be the green light in November? Green didn’t feature heavily in the recent analysis of the £1.4bn project’s prospects filed by the Infrastructure & Projects Authority. The IPA has been tracking progress since 2020/2021, at which point civil servants reckoned the road expansion was on track. By 2021/2022 things were sliding and today it is rated as “amber.” This means “successful delivery appears feasible but significant issues already exist, requiring management attention. These appear resolvable at this stage and, if addressed promptly, should not present a cost/schedule overrun.”

Funny name

The A66 dualling project is a trial run for an initiative called Project Speed – clue in the name – which is meant to halve the time big road schemes take to complete. So far it’s potholes not roadblocks slowing things down, such as the Planning Inspectorate refusing to rubber stamp a route realignment around Warcop, on the Cumbria side (the inspectorate will announce a final decision on 29 August), and Costain pulling out of a four-way contractor arrangement for the scheme with Balfour Beatty, Keltbray, and Kier.

And the floorspace?

Uncertainty hasn’t helped the spin-off commercial property prospects that the improved A66 ought to deliver. Scotch Corner would make a sensible place for big sheds – the 2012-2028 Richmondshire Plan said so – but there’s nothing much to see by way of progress since. The plan – written years ago – woefully noted: “Although well located for both the A1 and A66, only a small amount of employment development has taken place at Scotch Corner. Planning permission was first granted for a major seven-hectare employment development next to Scotch Corner 20 years ago and remains a planning commitment, but development has not yet started.” That said, a designer village is in progress (opening next year) as is a 107,000 sq ft shed providing 37 units. So, something, but not a major logistics hub.

Turning orange

The A66 upgrade is one of an embarrassingly large number of major Northern infrastructure schemes rated as amber or red by the IPA. Ready? The East Coast Digital Programme, which will improve rail signalling from Grantham South, has had three consecutive years in the amber category. The East Coast Main Line Enhancement Programme, an effort to increase capacity and reduce journey times, scored a green in 2018/2019 and has been amber ever since.

Or red

And more: electrification of the Midland Mainline from Wigston to Sheffield
and Nottingham (MML3) is also in its second year of amber while HS2 phase 2a (Birmingham to Crewe) has moved smoothly from green to bright red. Red means “successful delivery of the project appears to be unachievable. There are major issues with project definition, schedule, budget, quality and/or benefits delivery, which at this stage do not appear to be manageable or resolvable. The project may need re-scoping and/or its overall viability reassessed.”

Too much amber

And more: Phase 2b (Crewe to Manchester) is doing slightly better, and is stuck on amber, along with Northern Powerhouse Rail and the Transpennine Route Upgrade, both on amber for the last three years. The last is the low-fat version of a high-speed rail line including electrification, new track, digital signals, and increased opportunity for freight between Manchester, Huddersfield, Leeds, and York.

­ELEVATOR PITCH

Going up, or going down? This week’s movers

Flexible workspace remains a loss-maker; science property is in the midst of a massive chemical reaction. Stand by for one, or the other, to vanish in a puff of smoke. Doors closing, going down!

Laboratories

The scramble to capture Manchester’s science, tech, and life science occupiers just got serious. Kadans Science Partner, the Dutch sci-tech floorspace giant, has submitted a detailed planning application for a life science building on the former Citroen dealership in Upper Brook Street, part of Manchester’s university district. Kadans Science Partner and McLaren are gunning for 215,000 sq ft of laboratories and 740 student beds in a 23-storey block.

Next door, Property Alliance and Moda are looking at 470,000 sq ft of life science accommodation and 1,100 student beds. Up the road at the former UMIST campus, Bruntwood SciTech and the University of Manchester are getting their planning ducks in a row ahead of a 4m sq ft development.

Demand for labs is said to be good, and growing, and nobody is quaking at the prospect of so much floorspace in what is still an experiment in a novel property sector. But as with any chemical experiment, getting the mix right will be everything.

WeWork woes

Is anybody making any money from providing flexible serviced workspace? Despite the good vibes, and a post-pandemic boost, big names are still taking a hit. This week US-based giant WeWork declared “substantial doubt exists about the company’s ability to continue as a going concern.” This followed a 4% increase in revenue but a stonking increase in quarterly losses, up from £234m to £311m. Membership also dropped back. The firm has four offices in Manchester (and 50 in London) and says it needs to see cheaper rental deals.

It was the same story over at IWG. Revenues at the Regus and Spaces operator were up 16% to £1.7bn, but profit was unchanged (there wasn’t any, pre-tax) because costs went up. It has plenty of debt, the cost of which turned an H1 operating profit of £90m into a pre-tax loss of £70m.

Analysts reckon IWG will move into profit before too long, but optimism in the flexible workspace world seems to come a lot easier than a reliable surplus of income over costs.