Draft Charging Schedule - Jan 2017

Further to initial representations made in March 2015 on behalf of our clients Standard Life Investments UK Real Estates Fund previously known as Ignis UK Property Fund regarding the Draft CIL Charging Schedule (DCS), please find outlined below representations made in regard to the current consultation on the Revised Draft CIL Charging Schedule (RDCS) 2017.
Standard Life Investments UK Real Estates Fund has taken a keen interest in the development of the draft CIL charge for Warwick District Council (DC) given their ownership of one of Leamington's key economic assets Leamington Shopping Park. Warwick DC are failing to fully recognise the future impact that the proposed CIL charge will have on retail development in the authority area. Given the lack of recognition of our previous comments to date, either by way of a consultation report acknowledging the representations made or even informally, we would now urge the Council to seriously and fairly consider these representations in view of the current consultation and those previously made to ensure the attractiveness of the authority is not further hindered in regard to retail development. In addition, it is essential to guarantee the future charge 'strikes the
right balance' between helping to fund new infrastructure and the potential effects on economic viability. We maintain that this is not presently the case given the implications the proposed charge will have on retailing investment into existing assets as discussed in greater detail below.
Definitions 'convenience based supermarkets and superstores and retail parks'.
The RDCS considers two types of retail use/development:
"Retail - prime Leamington Spa zone";
"Convenience based supermarkets and superstores and retail parks".
The RDCS contains a definition of these categories, which we consider to be a significant omission if the RDCS is to provide clear advice to potential developers. The evidence base, in the form of the BNP Paribas Real Estate CIL Viability Study (June 2013) and Viability Study (2016 Update), defines two of the above development types in the footnotes to table 1.6.1 at page 5, as follows:
"Superstores/supermarkets are shopping destinations in their own right where weekly food shopping needs are met and which can also include non-food floorspace as part of the overall mix of the unit."
"Retail warehouses are large stores specialising in the sale of household goods (such as carpets, furniture and electrical goods), DIY items and other ranges of goods, catering for mainly car-borne
customers."
We do not consider that these definitions are adequate to enable a developer to understand which rate would apply to a given form of retail development. For example:
* What is a "shopping destination in its own right" in respect of superstores/supermarkets? This statement could apply to any shop (if customers visited just that one shop) or to no shops at all (if the customers habitually visited more than one shop by way of a linked trip);
Who would determine (and how) whether a superstore/supermarket meets weekly food shopping needs? It is a well reported recent trend that customers are shopping for food little and often, regardless of the size of establishment they shop at and the range of goods provided. The days of the weekly shop appear to be numbered. Moreover, the CIL charge would have to be calculated and paid long before the shopping habits of future customers of a development would be known. Furthermore, the type of shopping trip carried out could change significantly, multiple times, over the lifetime of the development;
* In respect of retail warehouses, are these synonymous with retail parks (as referred to in the schedule), or does a 'park' necessarily have to consist of more than one 'warehouse'? Would two such units comprise a 'park',
or three, or more? Is a shared car park or single ownership required?
* What does "large stores" mean? Is there a floorspace threshold? If so, this should be clearly stated.
* What does "specialising in the sales of" mean? Is it the same a "selling" or does it mean "exclusively selling" or "predominantly selling"?
* Who would determine (and how) whether a retail development catered for "mainly car-borne
customers"?
What proportion would constitute "mainly"? How would this be know at the point of calculating CIL the CIL charge would have to be calculated and paid long before the mode of travel of future customers would be known. Customer travel mode could change significantly, multiple times, over the lifetime of the development.
It is clear that nothing in the RDCS or evidence base addresses the above questions and accordingly the type of development that the "Convenience based supermarkets and superstores and retail parks" and what constituted "Retail others areas" charging rates are applicable to is effectively undefined. This is unacceptable and the charge attributed to "Convenience based supermarkets and superstores and retail parks" should be zero rated so that it becomes clear that a charge applies to the prime Leamington Spa zone only and that no charge applies to any form of retail development outside of that zone.
Evidence Base
The National Planning Practice Guidance sets out the requirements of the evidence base used to support a RDCS. It confirms that:
* "Care must be taken to ensure that it is robust." (paragraph 015);
* "A charging authority must use appropriate available evidence ... to inform their draft charging schedule ... consider a range of data, including values of land in both existing and planned uses, and property prices for example... rateable values for commercial property." (paragraph 019);
* "a charging authority should directly sample an appropriate range of types of sites across its area, in order to supplement existing data. ... The exercise should focus on strategic sites..., and those sites where the impact of the levy on economic viability is likely to be most significant (such as brownfield sites)." (paragraph 019);
* "Charging authorities that decide to set differential rates may need to undertake more finegrained
sampling...
Fine-grained sampling is also likely to be necessary where they wish to differentiate between categories or scales of intended use." (paragraph 019);
*"A charging authority should take development costs into account when setting its levy rate or rates,
particularly those likely to be incurred on ... brownfield land. A realistic understanding of costs is essential to the proper assessment of viability in an area." (paragraph 020);
*"Differential rates should not be used as a means to deliver policy objectives... Charging schedules with differential rates should not have a disproportionate impact on particular sectors or specialist forms of development." (paragraph 021); and
*"A draft charging schedule is prepared by the charging authority, in light of ... updated evidence where applicable." (paragraph 030).
Given the lack of clearly defined development types, it is difficult to see how the evidence base could have robustly tested those different types of development. Indeed, the only appraisals carried out in respect of retail development are an appraisal for "Lmtn Spa Prime (Ctrl Parade & Royal Priors)", "Rest of L'ton Spa, Warwick, Rest of District" and "Supermarkets, Superstores, Retail Parks" (see Appendix 5 of the June 2013 BNP Paribas Viability Study) and "Prime Leamington", "Retail Superstores" and "Outside Prime" (see Appendix 5 of the November 2016 Viability Update). As previously emphasised, we consider that carrying out a single appraisal for supermarkets/superstores (i.e. shopping destinations in their own right where weekly food shopping needs are met) and retail parks (i.e. large stores specialising in the sale of household goods, DIY items and other ranges
of goods, catering for mainly car-borne customers) is entirely inappropriate. These types of development comprise two wholly different forms of retail store with different construction specifications and costs, lifespans, values and returns. To assume the same inputs and outputs for both forms of development is entirely false and accordingly the evidence base cannot be considered robust in this regard. As no consideration has been given to this point in the updated viability evidence base WYG remain of the opinion that the proposed rate has been insufficiently evidenced.
Furthermore, the fact that all viability studies to date have only considered the redevelopment of a 15,000 sq ft existing store to provide a 30,000 sq ft store in the same use is also entirely inappropriate. While this may be more applicable to an extension to an existing store, where no additional land were required to achieve the development, it wholly fails to consider the development of a new store on a new site. The viability inputs and outputs of developing a new store are likely to be very different to a relatively straightforward extension. The viability considerations are likely to be different too for developments of different scales. A relatively small store is likely to be less viable than development of a larger store or stores due to economies of scale.
Given all of the foregoing, we do not consider that a robust evidence base exists and that care has not been taken to ensure that the evidence base is robust (as required by NPPG paragraph 015). A range of data, including values of land in both existing and planned uses, and property prices - have not been used (as required by NPPG paragraph 019). An appropriate range of types of sites have not been directly sampled and no appropriate focus has been brought to sites where the impact of the levy on economic viability is likely to be most significant such as brownfield sites (as required by NPPG paragraph 019). There has been no fine grained sampling to support the proposed differential rates for various (unclearly defined) types of retail development (as also required by NPPG paragraph 019).
Given the lack of distinction made between supermarkets, superstores and retail park units, a "realistic understanding of costs essential to the proper assessment of viability in an area" cannot have been achieved (as required by NPPG paragraph 020). Neither has the revised draft charging schedule been prepared "in light of ... updated evidence where applicable" (as required by NPPG paragraph 030).
Proposed Rate
Notwithstanding the criticism above, the June 2013 Viability Assessment concludes in paragraph 7.3
that "Superstores, supermarket and retail parks are capable of generating greater surplus value and
could absorb a CIL of £148 per square metre. After allowing for a discount below the maximum rate,
we suggest a CIL of £105 per square metre."
Paragraph 1.5 of the Viability Study (2016 Update) indicates; "Superstores, supermarket and retail parks are capable of generating greater surplus value and could absorb a CIL of £151 per square metre. After allowing for a discount below the maximum rate, we suggest a CIL of £105 per square metre".
The NPPG notes that "A charging authority's proposed rate or rates should be reasonable, given the
available evidence... There is room for some pragmatism. It would be appropriate to ensure that a
'buffer' or margin is included, so that the levy rate is able to support development when economic
circumstances adjust. In all cases, the charging authority should be able to explain its approach clearly." (paragraph 019, NPPG). This guidance was reflected by the proposed a charge of £75/sqm in their PDCS (a discount of c.50%), however is not reflected in the current RDCS.
A consistent approach was taken in respect to other development types. Retail development in the
prime Leamington Spa zone is reported as being able to absorb a CIL of £133/sqm in the base appraisal (appraisal 5), yet all charging schedules to date propose a rate of just £65/sqm. This assigns it a discount of 51%. However, inexplicably, and with no further justification whatsoever, the DCS/RDCS increases the CIL for supermarkets/superstores and retail parks from £75 to £105/sqm from the PDCS amount. The CIL charge for other development types remain unchanged (excluding student housing), including for residential development, notwithstanding the November 2014 viability addendum report finding "a marginal improvement in viability in comparison to the results in the June 2013 Viability Study". Accordingly, while other forms of commercial development i.e. prime zone retail receive 51% discount, supermarkets/ superstores and retail parks receive between 2934%
(based on the suggested potential £148/£151 absorption rate).
The NPPG notes that "Differential rates should not be used as a means to deliver policy objectives... Charging schedules with differential rates should not have a disproportionate impact on particular sectors or specialist forms of development." (paragraph 021, NPPG).
Given that no other CIL rate was amended between the publication of the PDCS and the DCS and given the higher level of discount that other types retail development receive (i.e. prime retail), it is impossible not to conclude that the increase in CIL for supermarkets/superstores and retail parks will not have a disproportionate impact on these sectors/forms of development and that this is not being used as a means to deliver some other policy objective. It is certainly the case that the charging authority has not explained its approach clearly (as required by NPPG (paragraph 019).
Conclusion
On behalf of our client, Standard Life Investments UK Real Estates Fund, we object to the proposed
'convenience based supermarkets, superstores and retail park' charge rate of £105 per sqm identified in the RDCS (2017). We consider that the category is poorly defined, providing no clarity as to which forms of development it would apply to. We consider that the evidence base informing the proposed CIL charge for these types of development is not robust having not tested a sufficient range of sites/development and not taking account of up to date cost information.
Notwithstanding these concerns, we maintain that the initial increase in CIL rate between the publication of the PDCS and the DCS (as maintaining in the RDCS) is irrational, is unexplained and would have a disproportionate impact on these types of development, along with the unexplained removal of the 'retail other areas' category and what is constituted.
We consider that the CIL charge for these types of development (supermarket/superstore and retail park) should be zero rated. Failing that, any charge should not exceed that set out in the PDCS.