Welcome to The Subplot, your regular slice of commentary on the North West business and property market from Place North West.
- Co-living complexities: US operator Commons targets Manchester as local developers ramp up their plans
- Hollywood on the Mersey: film studio plans cannot come soon enough
- Old Skool: the traditional shopping centre sale makes a welcome return
Co-living’s tipping point
The Collective, poster-child of UK co-living with ambitions to build a 100,000-unit portfolio, is facing break-up by its lenders. Yet Commons, a bigger US operation, is about to make its UK (and North West) debut, as local co-living operators mull a 2,000-unit pipeline. Is this the Big Moment?
The UK’s best-known co-living developer took a tumble last week, landing in administration. A toxic combination of reduced tenant income (thanks to the pandemic) and expensive expansion plans meant it couldn’t meet debt repayments. Lenders are expected to insist on a corporate break-up. The Collective isn’t the first co-living operator to hit trouble. With JLL calculating that about 25% of all UK co-living pipeline is focused on Manchester (Subplot, 21 June), this is troubling news for the region.
Too cool to last
The widespread view in the co-living world is that while The Collective’s flair for publicity did wonders for co-living as a concept, its product wasn’t doing the industry so many favours. “Small rooms, more like student housing, basically it was just great big houses in multiple occupation (HMOs),” one angry (out-of-region) competitor told Subplot. A lot of people agree.
Unfortunately, lots of local councils formulated their planning policies after studying The Collective’s approach. This isn’t always helpful because (as above) not everyone hearts The Collective. The result has been a legacy of planning restrictions. Manchester has adopted a limit (5,000 units) and a list of tolerated locations, and, having granted consent to Downing’s 45-storey, 2,224-unit scheme in March 2021, the doors are now said to be “well and truly closed, bolted, locked shut and likely to stay that way for three or four years,” according to one close observer. Birmingham is in danger of going down the same route.
But it doesn’t have to be this way. The Collective’s model is rejected by many aspiring co-living operators both in Manchester and elsewhere. Commons, a much larger US operator, is expected to announce its UK debut in the next few weeks. The market chatter is that five London sites have been chosen and Subplot has been told that Commons will be heading to Manchester rapidly. North West co-living developers are undaunted: Beech Holdings is working on a 1,300-unit national pipeline, Oppidan Life another 800 nationwide.
Instead of The Collective’s smaller rooms, the trend is to offer self-contained studios roughly twice the size of standard co-living bedrooms. Beech Holdings is a fan of studio flats (as is Woodbourne Group in Birmingham, among others). Instead of glorified student housing – bedroom, shared kitchen-diner – residents get a little home of their own, plus lots of communal amenity space. Stephen Beech says: “What residents want is a high-quality home, with amenities on site. The Collective offered the high-quality amenities, but not the quality home.” Self-contained space is important, he says. Beech is taking his offer to MediaCity Salford (150 units, pre-planning discussions are underway), Newcastle (250 units), Sheffield (350), and if Birmingham reconciles itself to the idea, to Birmingham too.
Colin Shenton’s Oppidan Life is also prepping a national roll-out starting with a 236-home Salford scheme to be constructed on a site off Booth Street next to The Lowry hotel and Dandara’s Chapel Wharf build-to-rent scheme (pictured). A site for a 130-unit Birmingham scheme is under offer and a pipeline of 800 units is now in view. Shenton’s takeaway from The Collective debacle is that co-living is not so much a property business, still less a tech business, but a people-focused hospitality business.
“People need people, the pandemic taught us that much,” says Shenton. People like brands, and branding will be the key to growth. “Branding will be important, because it gives everyone more confidence in the operators, and that is part of what local councils are looking for,” adds Shenton.
Meanwhile, the maths are still tricky. While co-living has the potential to out-pace other rival land uses – student accommodation, hotels, even normal BTR – it comes with a high entrance fee. “This is a very, very specialist funding market, there are no mainstream lenders involved, and while there is a lot of appetite to buy built and stabilised rented co-living blocks, for many operators getting the funding to get it built can be difficult,” says Beech.
The arrival of Commons could change perceptions in the North West, as could the efforts of co-living’s local heroes. If local councils begin to think differently about co-living then the tipping point will have arrived.
DRIVING THE WEEK
Ready for your close-up?
Are we nearing the end game on plans to develop a 260,000 sq ft film and TV studio complex at the Littlewoods Building in Liverpool’s Edge Lane? Everyone better hope so.
It’s now more than a year since the Liverpool City Region Combined Authority confirmed that it had allocated as much as £17m from the government’s Getting Building Fund to support the Littlewoods studio project. Yet it is only now that Liverpool City Council is preparing to finalise the legal and financial paperwork to support the first phase of Capital&Centric’s scheme. Council forward-planning paperwork shows a decision on financial and legal paperwork to “unlock development” was due to be made at cabinet on Friday last week, although the cabinet minutes show no such item up for debate. “It’s been pushed back pending further conversations,” Subplot was told.
This is by no means the first delay. Work on site was supposed to begin late last year. Yes, there was a devastating fire in 2018 and then a pandemic, but progress on the £54m plus project seems glacial, despite a tenant line-up that already accounts for about two-thirds of the floorspace. These include Liverpool John Moores University and another 85,000 sq ft let to Time and Space Studios (formerly Twickenham Studios). The only activity, so far, has come from the plot next door where the city council has backed a 20,000 sq ft pop-up sound stage, now named The Depot. The Capital&Centric studio plan replaced plans for a retail park in 2017.
It would be a huge shame if this project missed what is currently a wide-open window of opportunity in UK film and TV production. The £4bn+ UK film production scene is red hot, thanks to the boost in demand for content caused by the empty hours of lockdown, and life in general. Just last week Aviva Investors – hardly the kind of business to get star-struck – bought out its co-owner to acquire another 72-acres of the 200-acre plus Longcross studio complex in Surrey. Aviva promptly installed Netflix as a tenant. Long-dated income is the lure. JLL estimates about 2m sq ft of temporary studio floorspace is needed pretty much immediately. The pipeline of development is now swelling to around 3m sq ft. But it will take years to deliver.
The public sector may take some persuading that public funds are needed in a market so obviously brimming with private money. Given Liverpool’s unhappy history on property deals, the council will want to be extra cautious (government-appointed commissioner Deborah McLaughlin is listed as one of the consultees on the Littlewoods paper-trail). Subplot approached both Liverpool City Council and Capital&Centric for comment.
Roll the credits
But while everyone studies the paperwork, rival schemes could move ahead: Manchester’s Space Studios are working up plans for a 70,000 sq ft extension with Netflix-type occupiers in view, as Place North West reported in June. The quicker the Littlewoods scheme can move ahead, the better.
IN CASE YOU MISSED IT…
Finns ain’t what they used to be
At last, a pure play retail investment in the North West, as Liverpool’s 170,000 sq ft Clayton Square shopping centre changes hands. It’s an old-time mall bargain for the new owner.
These days most of retail property investment chatter is about residual value: the basic assumption is that, sooner or later, the shops themselves are a busted flush. Retail parks and supermarkets are more or less the only stock that sells, and residual value has a role to play even there (Subplot, 21 September). A pleasant relief, then, to find an old skool shopping centre sale.
Clayton Square is the debut purchase of Redical, run by Finnish duo Mikko Syrjanen and Petteri Barman, both of whom have links to Man Group via Aalto Invest, which Man acquired in 2016. Unusually these days, Clayton Square isn’t a distressed asset: the sale comes because the Patrizia fund involved had a fixed life. So why is this deal worth noticing?
It isn’t because of the price. The asking price was £21m, the sale price was somewhat less, and although everyone is being fantastically discreet it’s a safe guess that it was about half the £38.4m it sold for in 2016. This is par for the course in today’s crazy world. The yield was in single digits and, like the price, not really the story. Half a dozen bids means this is a proven market price. Yawn, yawn.
So what is interesting?
The context. This is a strong steady income strip, well let, in good order, and likely to generate healthy returns for decades to come, not least because the neighbourhood is doing okay. Flannels is about to open 120,000 sq ft practically next door, and the fact the retailer is relocating from Liverpool One tells you everything about the location’s appeal. The 24-unit scheme is 95% let to hard-core survivors including Boots, McDonalds, Tesco, EE and B&M.
“This a good quality institutional asset and yes, retail property always needs something doing to it, but there’s no wholesale redevelopment or refurbishment planned here. This is successful prime retail and it doesn’t need any heavy lifting,” explains the new owner’s advisor, Rivington Hark executive director Mark Williams. “Yes we’ve a distressed capital market, but this isn’t a distressed asset. It’s fit for purpose and still will be in 15-20 years time.” Thanks to cockeyed capital markets, Redical has got itself a bargain. Others will follow in its footsteps.
The Subplot is brought to you in association with Cratus and Oppidan Life.