The Subplot | Electric car charging, Manchester Arndale

Welcome to The Subplot, your regular slice of commentary on the North West business and property market from Place North West.

THIS WEEK

• Power failure: electric vehicle charging points are the latest hot amenity for offices, sheds, residential and retail. But do landlords and developers have some tough choices to make?

• For Sale: the future of Intu’s stake in the Manchester Arndale, revealed, and it is going to be complicated.

POWER FAILURE

Can the North West grab a 6m sq ft gigafactory to smooth the transition away from petrol and diesel?

Sparks fly as EV charging meets property

Greater Manchester and Merseyside are lagging badly on electric vehicle charging infrastructure. For North West landlords, is it worth the cost and the nuisance involved in stepping up the pace?

With the phasing out of fossil-fuel vehicles due as soon as 2030, the supply of electric vehicle (EV) charging points ought to be growing, but official data show that in Greater Manchester it has gone into reverse. In October 2020 there were 420, by January 2021 two dozen had gone missing, leaving just 395. The Liverpool City Region and Greater Manchester are failing by national standards, too. The national rate is 31 EV chargers per 100,000 residents. Greater Manchester has 13.9 chargers per 100,000 residents while Merseyside has 14.2; Cumbria (39.6) and Lancashire (27.5) do much better. Nationally, the more affluent an area is, the higher the EV charger count, which tells you a lot.

The landlord’s dilemma

For landlords and developers, this is tricky. Today EV ownership is an indulgence for the affluent. Do they invest in what is still a deeply niche sector, or do they wait for it to go mainstream? Many are investing now in the hope that they will be ahead of the game. This strategy comes with costs (making new power connections is not cheap) and risks (if they install low-capacity equipment, or the wrong equipment, it will soon be outdated).

Jump start

Exchange Quay, Salford, has around 1,000 car parking spaces serving 360,000 sq ft of offices. Till Asset Management originally expected to convert 500-600 spaces to EV charging points in five years. Now it thinks the pace of growth will be faster, as the cost of electric vehicles begins to fall. Till AM has 20 EV chargers in visitor parking bays: at around £6,000 each that’s a lot of upfront cost, but worth it says director Les Lang. “It’s a comfort for tenants,” he says. Even assuming some reduction in costs (discount for bulk, cheaper technology) 500 units will cost seven figures, easily.

Juice

There’s also the problem of power itself. The visitor units have to be fairly powerful (22kw) because visitors don’t hang around long. Employees, who have all day to charge, can use slower 7.5kw units. But add a few hundred of these and you’ve a mighty power requirement (and yes, they won’t all be on charge simultaneously but no, that doesn’t mean you can dramatically slash the power requirement). Just how expensive is obvious if you look at Till’s Manchester International Office Centre, where four EV chargers will soon grow to 14 then 24 (out of about 500 car parking spaces). Beyond about 20 EV units the existing 500kva transformer might not be adequate. A new substation starts at £65,000. You can see how this gets expensive.

But surely

But you can rent out these spaces for a premium, can’t you? And that will cover the cost? Well, not really. Yes, office tenants are increasingly interested in renting parking spaces with EV units, particularly if they offer, or hope to offer, an employee EV purchase scheme. The parking space comes with a modest rental uplift, something like an extra £100-£200 on a £500 a year space. But with EV chargers at £6,000 a time it will take landlords 30 years to cover the cost. “By the time we’ve got the money back the technology will be long redundant,” says Liam MacCarthy, also a director at Till AM. This is why some landlords (such as Capital & Centric, at the Bunker and Tempest workspaces in Liverpool) make EV charger points free to use.

Kw is the new sq ft

Exactly how redundant low Kw chargers are is a moot point. Look, for instance, at London-based EV Network. It plans six-to-12-space EV hubs in locations with high vehicle use, like drive-thru restaurants and shopping parks, and 12-24 space forecourt operations, which look like traditional garages. Heads of terms are out on several North West plots, part of a 20-site UK rollout. EV Network is installing EV chargers of 300kw, meaning a six-bay hub requires a 1800kva connection. That’s between 13 and 40 times more powerful than standard office car park EV chargers. Seb Prince, surveyor in Colliers’ automotive team, says higher capacity future-proofs the operation, so you don’t have to rip them out in two or three years. The same logic inspires Capital & Centric. It has added them as standard to the 80 houses at Rochdale Riverside. “Rapid chargers are more expensive but will become the norm,” says co-founder Tim Heatley.

Nice little earner

Of course, landlords and developers owning well-located sites could sign a deal with EV Network, or a similar outfit. Rents are about £1,500-£2,000 per bay. Better than the zero per bay an ordinary free car park generates, but not a fortune.

Shed surprise

Shed developers have issues, too. Amazon is investing heavily in electric cars (10,000 on order, another 90,000 still to come) and is now insisting on EV charging points at warehouses. Since electric HGVs are still non-existent, this means sites have to accommodate more vans, and more small vans means lots of yard, so plot densities go down. Land being costly, this eats into margins as does the cost of making an adequately beefed-up power connection.

Running dry

Electricity supply is already a pressing issue in the shed world because warehouse automation is a greedy user of power. Big boxes that, a decade or so ago, might need an 0.5MVA connection, now need 3-4MVA. That’s a lot of extra cost up front, and meeting it can run into hundreds of thousands, or even millions, of pounds. Subplot has spoken to shed developers, among them Segro and Logicor, who are watching site densities with interest and say they expect the next 12-18 months to mark a turning point for electric van use. Meantime, like everyone else, they are improving EV charging in car parks. Kevin Theobold, construction director at Tritax Symmetry, is lifting the quota of EV chargers from 5% to 20% of parking spaces (and installing ducting to allow EV charging in 100% of spaces).

Dwell time

Clearly for some sectors of the property business, EV charging is not a walk in the park. How about retail? If Knight Frank is right, there’s an opportunity here. The consultancy points to research which shows customers charging an electric vehicle spend up to 50% longer at a retail site, which in turn translates into average increased spending of up to £80. Knight Frank also points to Transport for London data which suggest rapid charging points pay for themselves within five-to-seven years. An income stream plus longer dwell time, what is there for retail landlords not to like? Some wonder about that, pointing out that most EV owners prefer to charge at home (easier, cheaper) and that EV charge points are mostly a back-up in case drivers get caught short.

Horseless carriage

Demand for charge points could be lower than we imagine because we’re all operating with the wrong mind-set. Remember, we only need petrol stations because most of us do not keep a vast tank of explosive liquid at home, but we (almost) all have our own EV charging capacity. Remember, too, how long it took for car makers (and users) to grasp that internal combustion engines did not work like horses. We may discover that new technology produces new desires and new behaviours (glance down at your phone, if you need proof). Capital & Centric’s Tim Heatley thinks EV charging may become as free and ubiquitous as free wifi. If he’s right the maths is going to get interesting.

Flat battery

Perhaps none of that matters? Landlords in all sectors like EV charge points because they provide a valued amenity, and one that involves a lot less irksome day-to-day management effort than, say, a regular yoga class or a new coffee shop. It also helps tick everyone’s ESG boxes. But the electric power-and-pounds equation only balances if the number of EV chargers is limited, and the technology has a reasonable shelf-life. Sooner or later technology will get cheaper. But into the medium term a larger network comes with a potentially hefty cost for the property sector, costs someone will have to pay.

IN CASE YOU MISSED IT…

Manchester Arndale sale: Latest

Did you miss the latest announcement about Savills and the sale of Intu’s stake in the 1.6m sq ft centre co-owned with M&G Real Estate? Actually, don’t worry, there hasn’t been one. Here’s why.

Savills has been appointed to advise on the disposal of Intu’s interest in Manchester Arndale. Meantime, lawyers agree that the Intu shareholding really belongs to lenders. Both the appointment, the imminent disposal and the legal issues were revealed in a series of dense reports to creditors in late January, which have gone largely unnoticed.

Like a record, baby

One of the trickiest questions facing KPMG, administrator of eight Intu entities, was ‘what to do with the Manchester Arndale?’ It was always an unusual case because the providers of a revolving credit facility (RCF) hold security over Intu’s shareholding. Exactly what this shareholding is takes some working out, because it is listed as 48% in the 2015 accounts, and 50% in the 2019 accounts. Another footnote explains that Intu owns a 50% shareholding in a joint venture with M&G Real Estate, and that joint venture owns 95.3% of the Arndale, and 90% of nearby designer fashion pitch New Cathedral Street. The credit facility is easier to pin down: £600m, maturing this year, secured on the Arndale and Cribbs Causeway, Bristol.

By the balls

The RCF security complicates things. The security is enforceable in ‘event of default’, which is a fancy way of saying ‘if Intu fell into administration’, which it obviously did. “An independent legal advisor has been instructed by the administrators to review the validity and enforceability of this security held by the RCF security agent and has seen no reason to cast doubt on the validity or enforceability of the RCF’s security and guarantees,” a KMPG report to creditors said. They could just have written “natch”.

Watching you

So what to do? The lenders have agreed a way out. Savills would be appointed as “a supervisory asset manager to monitor proposed asset management initiatives, thereby ensuring they either preserve or add value to the respective property”. In other words, the lenders get another pair of eyes. A sale comes next, the report explains. “In addition, Savills will be appointed as a strategic real estate advisor to support the group’s investment team. Working with the group’s RCF lenders, the joint administrators will assess the optimal time in the future to dispose of the company’s interest in these shopping centres.”

Any takers?

All of which raises the second big question for the Intu administration, and one of the easiest to answer: ‘does anyone want to buy big shopping centres?’ The answer is, ‘no they don’t.’ Last year’s effort to sell the Trafford Centre resulted in exactly zero acceptable bids, and so the Canada Pension Plan Investment Board, the major lender, took over. Administrators at KPMG told creditors in January 2021 that shopping centre valuations plunged again in the second half of 2020, leaving most of Intu’s centres underwater but that trading at the Arndale looked hopeful, which boded well for a sale.

The price is wrong

In December 2019 Intu’s share of the Arndale was valued at £309m, down 25% on the previous year. This feels generous today. Whether a straight sale wil generate enough to repay lenders their £600m credit facility is doubtful. However, a fancier kind of disposal, involving new partners and redevelopment, might work, and maybe this is the logic of Savill’s watching brief? The site is itself valuable, parts of the centre could be repurposed, and BTR developers are watching closely (see last week’s Subplot). The lenders have everything to play for.

M&G Real Estate and KPMG both told Subplot that today it was business as usual at the Arndale, and chose not to comment on the future. Savills said it had nothing to add.

The Subplot is brought to you in association with Cratus, Bruntwood Works, Savills and Morgan Sindall.