A major development project in Liverpool’s Knowledge Quarter is suffering from “a lack of investment” despite the city council pouring more than £100m into the scheme.
To date, around £144m has been spent by Liverpool Council on delivering the Spine office development, hotel and multi-story car park at Paddington Village. A new cabinet report has revealed how the local authority seeks to turn fortunes around and ensure further occupation of the site moving forward to avoid the scheme stalling.
Paddington Village is a major development project within the Knowledge Quarter, with Paddington Central - where the Spine, car park and Novotel hotel are situated - marking the first phase of the scheme.
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The report, to be heard by cabinet members next week, said against associated borrowing costs, investment by Liverpool Council is “currently underperforming with a lack of income being the main reason.” It said the scheme represents a “significant” investment that has been impacted by both the pandemic and broader economy.
As a result, the authority’s top team will consider plans to implement a range of flexible leasing options at The Spine, tariff structures for the car park and operating arrangements at Novotel to maximise income generation and overall asset management performance. Since opening May 2021, the Spine has occupied eight of its 14 floors, with the Royal College of Physicians as anchor tenant.
In March and July last year, a 1,249-space car park and 221-bed Novotel have also opened on site. Among the proposals to be put forward include Liverpool Council using existing Spine budgets to fit out three floors of the building, leasing of floors to Sciontec who would operate flexible workspace and continuing to market floors as shell only at market rent.
The report said: “It is critical that the council has a strategy to let these floors to increase the net operating income at The Spine and thereby increase the value of the asset. The council (as landlord) is currently covering the apportioned operating costs relating to service charge and insurance whilst these floors remain empty.”
Some specific enquiries for The Spine have halted or not progressed, either due to the complexity of the tenant having to undertake a full fit-out and the timescales required, or simply because they wanted smaller, more desk-ready space. There are also live enquiries progressing where the council does not wish The Spine to be ruled out of a shortlist on the basis the potential occupier does not have time to complete the full fit-out from shell and alternative locations present a simpler relocation solution.
Additionally, the cabinet will consider potential changes to car park contract pricing structures at the associated location. The report said general feedback from property agents detailed how the previous draft pricing structure was too high compared to other established city centre car parks, particularly when trying to use parking as an incentive to secure tenants in the Spine.
It added: “While the council needs to reserve spaces in the car park for the remaining plots at Paddington Central, these are likely to be three years away from completion when the parking demand would be required. As such, there is the opportunity to agree bulk contract parking arrangements in the short-to medium term to boost car park income.”
A monthly Paddington working group has been established to focus on key asset management issues, including short-term strategies to maximise income against the council’s income generating assets and, longer-term consideration of its exit-strategy from the site. A fresh cabinet report is expected later this year on a strategy for the four remaining plots at Paddington Central, which could include forming part of a Liverpool City Region Investment Zone proposal to government focused on the region's strengths in health and life-sciences.
The report added how it was “critical” the council prioritises increased income against these assets “to improve their financial performance and regeneration potential.” Increased occupancy would increase confidence and “drive plot development” which would lead to further income across the site, according to the document.
It said should action not be taken, the “downside scenario would cause the whole development to stall and require higher levels of revenue contribution from Liverpool Council to support not just the office space but other council owned buildings due to lower demand.”
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