Westfield shopping centre London development project - Essay Example

? Westfield Shopping Centre London Development Project This paper is intended to identify and map out the key actors for each phase of Westfield Shopping Centre London Development Project, from its inception to the final use, as well as to describe and analyse the process of value generation and its distribution between the public and private sector. The paper also identifies the risks each of the main actors took within the project and the returns they get back for taking on those risks. Introduction Wilkinson and Reed (2008, p.) define the property development as “a process that involves changing or intensifying the use of land to produce buildings for occupation”. On the one hand the property development include not only the land/property itself, e.g. buying or selling it for a profit, but also the infrastructure, building materials, labour, finance, etc., which further determines the process as complex, lengthy and high-risk activity often involving large sums of money and providing a relatively illiquid product (Wilkinson and Reed, 2008, p.2, 27). On the other hand, this activity does not exist apart from the wider economic and social contexts, whether at local or national levels; therefore, the market (in the case of market-driven economies) directly influences the process of property development. Like all market-driven activities, the property development appears an end product of the demand and supply imbalances generated in the user and investor’s sides of the market respectively; and is also subjected to different interests originating amongst various actors which are unequally represented in terms of whether financial, aesthetic, emotional, social, etc. profit or loss (D’Arcy and Keogh in Guy and Henneberry, eds., 2002, p.19). According to Wilkinson and Reed (2008, p.3) the development process could be divided into several not entirely sequential, often overlapping and repeating stages – initiation, evaluation, acquisition, design and costing, permissions, commitment, implementation, and final use – let/manage/dispose; and a variety of important actors appear either within each stage of the process or across some/all of them, as follows: public sector and government agencies, planners (planning authorities), financial institutions, building contractors, professional team, and objectors (Wilkinson and Reed, 2008, pp.13-27). Though these actors are likely to have different perspectives and expectations, they contribute to the outcome of the property development process. The property development process itself, despite its complexity, displays the general characteristics of any other industrial production process - a combination of various inputs in order to achieve an output or product; but there are two features that make it very different – the unique end product (either in terms of physical characteristics or location) and the constant public attention focused on it, from the first to the last stage (Wilkinson and Reed, 2008, p.2). The Brief Westfield London Shopping Centre is a mega mall situated in Shepherd’s Bush – London Borough of Hammersmith and Fulham, which provides 130 803 sq m (1 408 000 sq ft) of retail and leisure accommodation, being home to over 265 shops on five levels, 50 restaurants and cafes, as well as cinema, and car parks for 4 500 cars. The development project has involved regenerating over 44 acres of brownfield site, 9 separate rail projects including the rebuilding/relocation of an operational depot facility for London Underground’s Central Line, together with major road works and construction of three railway stations – two on London’s underground network and one on its over ground network. The project included redevelopment of two Dimco Buildings – Grade 2 listed structures built in 1898 and adjacent to the main construction site, a revamp of Shepherd’s Bush Green and new affordable housing schemes funded by Westfield Development (BBC News, 2009; Savills UK, n.d.). Main phases and actors The development scheme was being undertaken on a brownfield site, part of which had been the location of the 1908 Franco-British Exhibition and the 1908 Olympic Games, alongside Wood Lane station and White City depot of the London Underground. The foundations for the project’s initiation stage were laid by the respective chapter of the Hammersmith and Fulham Unitary Development Plan being made in general conformity with the Spatial Development Strategy (Hammersmith & Fulham Council, n.d.). Therefore, the main actors, which appear within the early laps of this project’s initiation stage, are the planners and the public sector – according to Wilkinson and Reed (2008, p.14) – represented by the Hammersmith and Fulham Council planning authorities at local level, the Mayor of London acting as regional planning body, alongside the State as regulator and facilitator, and both Hammersmith an Fulham Council and Transport for London as public sector freehold owners (Hammersmith & Fulham Council, n.d.). Having launched a bid for the particular White City regeneration scheme in 2003, Chelsfield Group, under Elliott Bernerd and Reuben Brothers, became the developer. The period between Chelsfield’s bid in 2003 and the 2004, when its assets had been sold out, is considered to embrace the evaluation, acquisition, design and costing, and permissions phases of the development process which would later become known as Westfield London. The main actors at this stage included Chelsfield Group as developer, the planners - Hammersmith and Fulham Council planning authorities, the public sector freehold owner – Transport for London, being complemented by the open-ended German fund CGI which have acquired a 50% stake in the scheme from Chelsfield and acted as a financial institution intending to provide development funding until the practical completion of the project in 2007 (Europe RE, 2004). Savills Co. appeared the agent used by CGI for identification of the opportunity, intermediating and advising on acquisition (including funding terms), and project monitoring (Savills, n.d.). Shortly thereafter, the Australian-based Westfield Group joined with another Australian-owned company, Multiplex, to acquire Duelguide consortium (which owned the Chelsfield) along with 25% interest in White City as part of the Chelsfield portfolio with additional 25% purchased from the other partners one year later (McNally, P. and Malone, M., eds., n.d., p.121). With the scheme’s design made by Ian Ritchie being approved by the Council, planning permission - granted, and the construction works under way, the new developer Westfield - having obtained a 50% stake in the project with the other half being owned by CGI (later on Commerz Real AG, a wholly-owned subsidiary of Commerzbank AG, Germany) - assembled the design team including Westfield in-house team, Robert Bird Group – an Australian-owned structural and civil engineering consultancy, Softroom, Buchan Group, the US architect Michael Gabellini, etc., which is thought to have marked the beginning of the project’s commitment and implementation phase. A highly ambitious retrofit design had been undertaken in order to create the Westfield vision for the project (The Independent UK, 2008). The construction (implementation) phase lasted for five years with construction works performed by the developer’s own arm – Westfield Construction, involving 8 000 people who worked on the site up to the opening of the shopping centre in 2008. The works on the rail projects involved Transport for London, Network Rail, as well as Capita Symonds as project manager for Shepherd’s Bush railway station, etc. (Barney, 2007). The beginning of the final phase (let/manage) has been marked by the official opening of the shopping centre at the end of October 2008 – containing over 270 shops, 40 of which being luxury and designer brands like Tiffany & Co, Gucci, Prada, etc., anchored by Louis Vuitton, and with five anchor stores – Marks and Spencer, Debenhams, Next, House of Fraser, and Waitrose (Westfield/Corporate news, 2008). Cinema De Lux anchored the entertainment component with a 14-screen cinema; there were nearly 50 places to eat, bars and restaurants, (The Independent UK, 2008). Value generation and distribution The process of value generation is schematically described through the following diagram, where the activity moves from left to right in five consecutive segments, and the actors connected with each segment provide inputs via a series of activities. The diagram is based on George Wimpey’s land value chain diagram (Sutcliffe, 2006), and reflects the legislative context and other conditions valid at the time of, and concerning the particular development project. Urban planning an d regulations: This segment includes actors like local authorities, regional planning bodies and the State in its role as facilitator and top regulator. The inputs are represented by the respective Spatial Development Strategy/Regional Development Strategy, Unitary Development Plan (later Local Development Framework), and Policy Guidance Note/ Statement of the Government, and might be considered to include five steps pointed by Sutcliffe (2006) in the land value chain diagram – RSS, LDF Allocation, Annual Monitoring Report, Change of Use, and Outline Planning Permission. The segment denotes a phase during which value is added to the base land through the process of creating legal prerequisites for further economic opportunities, based on the UK planning system modus operandi. The rough estimate of the total cumulative % value, according to Sutcliffe (2006), is considered about 80% of the final sales value. Fig.1 The process of value generation (based on the Land Value Chain diagram – made after Sutcliffe, 2006 Ownership and development: The actors providing inputs here are the public/private sector owners of the land, the developer/developers, the local planning authorities, the professional team including architects, designers, engineers, property consultants/valuation surveyors, etc. Their inputs being in the form of property subdivision and substitution, property and infrastructure design, and detailed planning permission are considered to add value as generally estimated by Sutcliffe (2006) up to 90% of final value. The immediate effect of Westfield London development project (including the road and rail infrastructure) on the local economy and especially on the property market niche appeared in an upward trend in housing selling prices and rents within the area (The Independent UK, 2008). Funding (equity/debt): The equity part of the finance segment consists of financial institutions (funds, private companies and individuals) that invest in real estate, thus providing the capital needed by the developers to undertake their project. The debt part is represented by the financial institutions (commercial banks, etc.) which provide finance in whether in the form of ‘corporate’ lending to the development company or lending against a particular development project (Wilkinson and Reed, 2008, p.17). The inputs provided by the actors within the funding segment - in terms of value generation - could be included into the percentage of final value assigned to the previous segment. Construction: This segment includes the construction companies and these which perform construction management for large property owners. In the case of Westfield London development project it’s the developer’s own arm – Westfield Construction, involving 8 000 people who worked on the site, which was responsible for every phase of construction, working in close co-operation with the Westfield professional team, Transport for London, etc., from the initial idea through construction, commissioning (making sure the building is built to specifications), to the completion of the building for the final use. Besides the total construction cost of 1.7 billion pounds compared to about 2.5 billion acquisition cost of the scheme, along with the major infrastructure works (assessed at over 200 million pounds), there are additional inputs like the 3-million-pound revamp of Shepherd’s Bush Green, social and private housing scheme, etc. (BBC News, 2009). Final use (let/manage): The final output of the chain of value generation is the specific use of the built environment. At the time of opening, Westfield said that the centre has been 99 per cent leased, with about 90 per cent of the tenants locked into long-term contracts. Value distribution The value distribution to the public sector is represented by: the major infrastructure improvements, namely the new Wood Lane railway station for the Hammersmith & Fulham line and the Central Line station at Shepherd’s Bush - both of the London Underground, a new Shepherd’s Bush station for London Overground’s West London Line, restoration of two Dimco Buildings built in 1898-9, bus terminals; a 3-million-pound revamp of Shepherd’s Bush Green, housing scheme of 78 new homes, library within the mall, and 24-hour policing (BBC News, 2009). The cost of the infrastructure improvements is considered to have exceeded 200 million pounds, as against 1.7 billion pounds total cost of the project, and reported 23 million visitors of the shopping mall for the first year in operation alone. Major risks and returns With projects like Westfield London scheme, risks of various types do exist, likely to affect each and every one of the main actors, though with different scope, weight and direction. When talking about risks connected with entrepreneurial activity, however, precedence might be given to the financial one; and the developer, as the leading actor who creates new interests in the property (D’Arcy and Keogh in Guy and Henneberry, eds., 2002, p.19), takes the brunt of it. Given the scale of Westfield London development project and the particular time when it has been launched, it might as well be considered that Westfield Group took a high risk, opening Europe’s largest inner city shopping mall during what has become the longest UK recession in history (BBC News, 2009). The same is true for Westfield’s partner in this venture - Commerz Grundbesitz Investment Gesellschaft GmbH (now Commerz Real GmbH) which possesses a 50% stake of the scheme. The return, however, has been a long-term lease of 99 per cent of the new centre, some 23 million visits generated in the first year of operation, which in all, not only put Westfield London shopping centre amidst the best performing ones, but also to a great degree strengthened the Group’s position in the UK market (McNally, P. and Malone, M., eds., n.d.). Another main actor within the development scheme – Hammersmith & Fulham Borough – has had to deal with risks of his own, like possible traffic and parking problems, damaging the distinctiveness and history of the area, adverse effect on independent retailers including Shepherd's Bush market, with its ethnic grocery stores and stalls selling fruit and fabrics, etc. (Purnell, S., 2006). In return the public sector would enjoy the transformation of the area from an “unappetising filling sandwiched between two of West London’s priciest neighbourhoods” to a bustling centre drawing people from the entire western half of the city and beyond; let alone the tax incomes and over 7000 jobs of which 1000 to local residents (Purnell, S., 2006; BBC News, 2009). The third main actor – Transport for London – is considered to have taken the lowest risk against the highest reward, compared to the other participants in the scheme. Apart from the blunder with Shepherd’s Bush station in 2007 (Barney, K., 2007), which in fact did not affect the transport operator but the developer, the new road and rail facilities and upgraded links allow the company to additionally serve a tremendous amount of passengers per year (due to the shopping centre alone) with all the financial benefits that stem from that situation. Conclusion Despite the high risks taken during a time of economic woes, alongside the fears of possible adverse impact on the local community, the Westfield London Development project has proven successful for both private and public sector actors involved with its completion and operation, and would appear a benchmark for successful urban regeneration scheme in the long run. References 1. Barney, K., 2007, New railway station over budget...and undersized, London Evening Standard [online] Available at [Accessed 10 March 2011] 2. BBC News, 2009, A year in the shadow of Westfield [online] Available at < http://news.bbc.co.uk/2/hi/uk_news/england/london/8327455.stm> [Accessed 7 March 2011] 3. Europe Real Estate, 2004, Westfield submits a ?540m Chelsfield offer, [online] Available at < http://www.europe-re.com/system/main.php?pageid=2616&articleid=607&objectid =10810> [Accessed 8 March 2011] 4. Guy, S. and Henneberry, J. eds., 2002, Development and Developers: Perspectives on Property, Oxford: Blackwell Science ltd 5. Hammersmith & Fulham Council, n.d., Hammersmith and Fulham Unitary Development Plan 2003 [online] Available at < http://www.lbhf.gov.uk/> [Accessed 7 March 2011] 6. Hammersmith & Fulham Council, n.d., Local Development Framework [online] Available at < http://www.lbhf.gov.uk/> [Accessed 7 March 2011] 7. London.gov.UK, n.d., London’s planning at local level: Local Development Frameworks, [online] Available at < http://www.london.gov.uk/priorities/planning/local-development-frameworks > [Accessed 8 March 2011] 8. McNally, P. and Malone, M., eds., n.d., Westfield Fiftieth Anniversary book, Australia: Hardie Grant Magazines, [online] Available at < http://westfield.ice4.interactiveinvestor. com.au/westfield1002/index.html> [Accessed 10 March 2011] 9. Purnell, S., 2006, Bloom or bust for Shepherd’s Bush? The Telegraph [online] Available at < http://www.telegraph.co.uk/property/3353589/Bloom-or-bust-for-Shepherds-Bush. html> [Accessed 8 March 2011] 10. Savills UK, n.d., Westfield London, [online] Available at < http://www.savills.co.uk/ services/investment-and-finance/investment/central-london/westfield-london.aspx> [Accessed 7 March 2011] 11. Sutcliffe, I., 2006, Analyst Visit South Midlands, George Wimpey UK 12. The Independent UK, 2008, Mega-mall: Is this the future of shopping?[online] Available at [Accessed 9 March 2011] 13. Westfield/Corporate News, 2008, Westfield flagship opens in London, [online] Available at < http://westfield.com/corporate/> [Accessed 10 March 2011] 14. Wilkinson, S. and Reed R., Foreword by Cadman, D., 2008, Property Development, 5th ed., Abingdon, Oxon: Routledge Read More