Its day-to-day operations may be unique, but Transport for London (TfL) faces the same types of budget and capacity pressures as all regional and local authorities. And like other public bodies, TfL wants – needs, in fact – to make better use of its asset base, both to improve services and to offset operating and capital costs.
However, the transport authority is taking that effort to a whole new level, going beyond advertising, kiosks and ‘raw’ space rentals like railway arches to establish a commercial development arm and pursue property development and asset management initiatives across its network.
With 5,700 acres of land and more than 500 potential major-development sites, the first challenge was deciding where to start, according to Commercial Development Director Graeme Craig. Consultant Deloitte Real Estate was appointed to support his team and together, they narrowed the list from 511 to 200 and finally to 75 sites that could be taken forward over the next 10 years.
“The current land value of those 75 sites is £1.9bn,” says Craig. TfL is looking to develop these sites, predominantly through joint ventures, but some schemes may take longer than 10 years to take forward, so the final impact of TfL’s business plan is not yet set.
It’s already clear, however, that Commercial Development will be able to generate its ‘stretch’ target of an additional £1bn over the next ten years, and almost certainly more beyond that.
The acreage makes Transport for London one of the capital’s largest land-owners, and the number of major sites could make it London’s largest property developer, but the effort is just getting underway.
“In essence, what the organisation is doing is waking up to the value of its assets and realising that really, we should be like a great estate; that’s how we should operate,” says Craig. “We should retain our property, we should invest in our property, we should grow the values and grow the revenue from our property, and there is huge potential for doing that.”
Internally, the priority is to build expertise and expand the team from 5 to possibly 30, albeit over several years. Externally, the emphasis is on finding partners who can deliver on all that potential. The development group wants to establish four to six joint ventures to build momentum and start delivering on the 75 sites.
As Craig put it, “the answer cannot be that you stick all those into one joint venture because there’s no organisation large enough to take them all forward, and the answer cannot be that you go through 75 procurements in order to come up with the right answer for each one. Identifying people with whom we can work must be the answer. We’re engaging in joint ventures because we don’t have all the skills and experience to take these things forward, but we do want to retain an interest.”
The authority’s first major-site joint venture has been very ambitious, but hasn’t all been smooth sailing. On the 26.5-acre Earls Court Project, TfL is a 37% partner, with Capital & Counties (Capco) holding the other 63%. The total development is meant to provide 7,500 homes, with 1,500 affordable (about half-and-half new and replacement), but has been knocked for displacing local residents and the exhibition centre’s history.
Still, even journalist Dave Hill, criticising the project in the Guardian, acknowledged that TfL can and should use its assets to cover escalating operational and capital costs, rather than relying on fare-box revenues alone:
“Many sites in and around its stations have scope for redevelopment which, in turn, can help fund improvements – deals with commercial developers need not be a bad thing. With London’s land prices seemingly set to keep on rocketing, the potential for making more money from these is being explored. The policy is not to simply sell off land for ready cash, but to enter into partnerships, in principle enabling TfL to share in the ensuing profits long-term.” (Guardian, Feb 9th, 2014)
That is the authority’s overall plan, and other early sites – if smaller – are getting a warmer response. On the asset management front, Old Street station has already had a temporary make-over, with improved way-finding, pop-up retail and food shops, and a top-to-bottom clean-up. Initial reviews are overwhelmingly positive.
Other key sites tied directly to stations include South Kensington, Baker Street, Golders Green, Victoria, Whitechapel and Canary Wharf. Around stations like South Kensington, the goal is to deliver operational improvements and create a sense of arrival and excitement tied to the museums of Albertopolis – funded by residential development on nearby TfL land.
At Canary Wharf, plans include a business lounge as well as vending, expanded retail and advertising. TfL is also applying for an office-to-residential conversion for its stunning Art Deco 55 Broadway building, formerly London Underground’s head office and a perennial favourite for Open House London.
Craig says a key change is taking on more of this type of project internally. “We’re no longer putting things to market. Old buildings like this, we’ll take forward and get planning ourselves, and then we’ll identify a partner with whom we’ll develop the site. We’re looking to kick off a process this autumn to identify joint venture partners… selected on the basis of their ability to work in partnership with us, their demonstrable experience of having delivered in London, their access to money to some extent, but perhaps even more, their access to expertise.”
TfL’s other development priority is asset management. The portfolio includes 1,000 retail units and 2,500 other tenants, with many opportunities to improve the offer to passengers and locals. Click-and-collect arrangements have been offered at stations since November 2013. Already working with Tesco, Waitrose and Asda, TfL’s offer is expanding rapidly. “We now have a queue of retailers who want to work with us on Click and Collect, because people get the fact that it’s the most obvious thing in the world, if you’re going in to work, you should be able to order things on your smartphone or tablet and pick them up on your way home. Within two months we’ll have click and collect at forty stations, with many more to follow.”
As another example, the organisation has replaced ATMs at its stations with versions that dispense euros as well as pounds, as part of the effort to target services to users. In the longer term, solutions may involve larger changes, such as shifting station-adjacent buildings from retail to childcare, cycle parking or GP surgeries – gathering data on user needs is an immense and ongoing task.
The team is also working to identify and assess property away from stations. As part of the process, Craig says his team is looking at adjoining interests – “We have hundreds of separate sites in some boroughs. Given the scale, it will take weeks within a single borough to assess all our land-holdings and the adjoining land interests held elsewhere in the public sector, and then draw up a list of opportunities we should be working on. When we complete that process with one borough, we’re only one thirty-third of the way there.”