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Cherwell’s Reckless Investment in a Struggling Shopping Centre Leads to Cuts in Services and Increased Charges for all Cherwell Residents

Cherwell District Council announced it’s budget last week detailing £4.4m in cuts and extra charges that it will be imposing on the residents of Cherwell as well as an increase in council tax.

During the budget debate I raised my concerns that around a third of these cuts and charges were as a result of losses incurred over the past two years in Banbury

In a nutshell the centre is predicted to make a loss of around £1.6m in the 21/22 financial year after having made a similar loss in 20/21.  On a broader scale, taking into account some small gains in the first 2 years the council owned the development, it will have racked up losses in the region of £2.5m by the end of the next financial year if the current predictions are correct.  To close the gap left by that hole in the budget there have been additional service cuts with around a third of those in the forthcoming budget directly attributable to pressures from Castle Quay. 

You may have seen some of this in the press this week in Oxford Mail and the Banbury Guardian

I was also interviewed by BBC Radio Oxford, although my section was recorded and heavily edited, after which Cllr Tony Ilot ,the Lead Member for Financial Management & Governance on Cherwell District Council, was invited on the show live to respond.  If we’d been on at the same time I might have pointed out that as the councillor responsible for this development it would have been more encouraging had he bothered to do his homework before coming on.  At one point he seemed uncertain about how much the losses amounted to (he guessed at £1.3m and the interviewer had to correct him that it was £1.6m) and he also claimed that the £1.6m was a cumulative loss since the council took ownership.  It’s not, it’s just the predicted loss for the forthcoming year on top of a similar one for the last year. You’d think the Lead Member for Financial Management & Governance might have been a little more cognisant of the situation given the scale of problem, but this lack of concern over important details is a familiar theme with Cherwell’s Conservatives.

Cllr Ilot also seemed quite laid back about the fact that the centre is now worth less than half what was paid for item having lost a whopping £30m in value.  They are also currently spending even more than the original purchase price for the shopping centre on the canal side extension which, as a retail analyst myself, I think they are going to struggle to make a return on.

You can listen to the interview in full here 

The council’s line on this has been that the losses at CQ have not directly resulted in an increase in the council tax. As that increase was already in the pipeline anyway that’s probably fair to say, but it also fair to say that if this white elephant wasn’t providing such a huge financial drag on the council’s resources, we may not have needed to increase the tax and we certainly wouldn’t have need many of the cuts in services.

It will be interesting to see how much support we get for the high street in Kidlington and the Exeter Close project in the light of all this.  Certainly something we can point them to if they start penny-pinching on our project to support the eye-watering amounts of public money that’s being poured into one scheme in the far north of the district that we’re all footing the bill for.

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My response to Cherwell District Council’s 2021/22 Budget

At the full meeting of 22nd February Cherwell District Council passed their budget for the forthcoming financial year. I spoke in the debate criticising a further lack of response to the climate emergency and highlighting the pressures that the council’s reliance on commercial investments have placed on its finances, in particular its ownership of the Castle Quay shopping centre in Banbury.

I’ve long been a critic of the decision to risk council tax payers money by investing in a shopping centre that was already starting to show signs of distress. It was a quite ludicrous decision at the worst possible time, just as the retail economy was collapsing. As a retail analyst myself I’m acutely aware of the pitfalls of investment into retail space with provincial shopping centres being some of the most challenging developments to achieve a viable return on now.

I and fellow members of the council have been excluded from the so-called cross party advisory group on the management of Castle Quay which is entirely composed of Conservative and Labour councillors. Labour supported the purchase of Castle Quay in 2018 for £63m with a further commitment of a similar sum to build a canal-side extension, including a cinema and a hotel.

Looking at the figures in this budget we can see that around a third of the financial pressures are a result of losses attributed to Castle Quay. Even if the council’s own optimistic predictions are correct, by the end of next year Castle Quay will have returned a loss of around £1.9m since the council took full ownership.

The value of the centre is now around half what was paid for it, amounting to a whopping £30m loss of equity in an investment backed by council-tax payers money!

Of course all this is now being blamed on the pandemic, but that’s only part of the story. This was always a reckless investment, and that recklessness has now translated into service cuts for everyone in Cherwell.

Whilst I agree that councils should be the drivers of town centre regeneration, that needs to be evenly distributed. Ownership of Castle Quay is likely to produce only dubious benefit to the people of Banbury with a potentially massive financial burden that will be felt by every Cherwell resident for years to come”

As a retail analyst and adviser, I made my misgivings about the public purchase of a struggling shopping centre clear to the council, even before I was a councillor, but was ignored.

I knew there were already signs of problems on the horizon with several of the major tenants of the scheme, not least Debenhams which recently collapsed into administration.  That failure is yet another problem that is about to hit the beleaguered development when lockdown is lifted.

The much vaunted opening of Lock 29 indoor market in the space previously occupied by one of the other failed anchor tenants – BHS – is yet to prove itself viable.  While I support the inclusion and encouragement of many of the smaller enterprises that were invited to trade there, it’s notable that the major occupier, Happerley, pulled out last year after only 3 months. 

I have asked several questions of the council about Happerley’s involvement with the scheme and the due diligence that went into licencing that company to trade there in the first place.  Those questions remain unanswered.

I originally supported the extension of the scheme with more canal-side restaurant and leisure uses, but as time has gone on it’s becoming apparent that even that is a dubious move. One of the major parts of the development is a cinema, and we are already seeing a market shift there with several of the large cinema operators closing venues and some going into administration

Little focus on climate change

We’ve just had a taste of the pressures a global catastrophe can place on our finances.  In the coming years, ecological threats will make the pandemic look like a mini-break.  Yet 2 years into our declaration of a climate emergency, we have another budget with very little progress towards tackling that threat.

The last budget had a tiny percentage of spending dedicated to the ecological emergency and even that wasn’t fully honoured.  This one has just 5 short paragraphs – less than a page of vague aspirations with no real commitment to anything.  Added to that we’ve increased charges for making homes more energy efficient, the very thing we should be encouraging!

Last year’s budget was billed as Cherwell’s “greenest budget ever” yet many of the pledges made then remain unfulfilled, not least the promise to convert lighting at Bodicote House to LED which would have saved the council money as well as helping to save the environment.

On top of that we also have increased building regulations charges for thermal upgrades to buildings and for the installation of solar panels. These are the very things we should be encouraging residents and businesses to do. Many councils don’t charge at all for Solar Panel installations

It’s becoming clear that Cherwell’s ruling Conservative members simply don’t understand the meaning of the word ’emergency’.  We need to be taking bold steps towards tackling climate change, but the Conservatives would rather simply box tick and greenwash with projects that are either not of their making or are never completed. 

The huge financial commitment that is now being poured into the new waterside development in Banbury could have gone towards renewable energy schemes that would have both helped with climate change and returned a regular profit for the council instead of the losses we see from Castle Quay now. 

Unfortunately due to the short-sightedness and fiscal incompetence of the council’s political  leadership we are now committed to a path that I think will just bring further financial misery to the residents we should be working to protect.”

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Should Cherwell District Council be Risking Public Money Buying Shopping Centres?

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As I said in the recent election debate on the BBC, in my opinion they shouldn’t.

There are many reasons it’s a bad idea, both from a business perspective and as part of local spending priorities.

I’ve worked in retail nearly all my life.  I built and ran a national chain of jewellery stores across the country and traded in several shopping centres, including some of the most prestigious in the country such as Bluewater in Kent and the new Bullring Centre in Birmingham.  I write a regular column for Retail week Magazine and comment regularly in the national press on retail issues as well as offering consultancy services.  One of my main focusses is independent retail and commercial property.  So I know a little bit about what I’m talking about.

Cherwell District Council (CDC) leader Barry Wood claims that buying the Castle Quay Shopping Centre in Banbury is a good deal for the people of Cherwell.  This decision was also backed by the Labour group on the council and their leader Sean Woodcock has assured me there’s a good business case for doing it.  Unfortunately neither of them have been able to show it to me so far.

Their belief is that buying a commercial property like a shopping centre is a good idea as property will always rise in value.  This may be the case for domestic property and some kinds of commercial premises, but not always with retail space.

A Good Investment?

The argument for buying the scheme seems to be that if they hadn’t, the centre would have shut down.  It has many long term empty units and is generally struggling to compete in an ever crowded marketplace.  The council’s decision a few years ago to allow a new shopping park to open on the outskirts of Banbury haven’t helped its plight.

It’s extremely unlikely though that it would have closed down.  Much more likely that it would have been offloaded by its pension investment owners to another investment company with more experience of running a shopping centre than some local councillors.

Moreover, if the argument is that the centre was about to collapse, that doesn’t exactly make it an attractive investment for public money does it?

There have been some shopping centre failures in the past, but they are few and far between.  But when they do go, they tend to go completely.  That means an almost total loss for anyone unlucky enough to be the owner at the time.  There will be some residual value in the land, but that’s unlikely to reflect the full price paid for the whole development.

There have been a growing number of retail failures in recent years with 650 collapses so far this year alone, and we’re not even half way through yet!  Some of them very high profile and heavily leveraged operations.  Others are busy negotiating partial closures and rent reductions with their landlords.  Others are moving more into the online arena and abandoning physical retail space almost altogether.

None of this bodes well for an under-let, under-invested and down at heel shopping centre in a struggling town in North Oxfordshire.

So essentially CDC are gambling with public money against the odds.  And it doesn’t end there.

Other Costs

According to Barry Wood the scheme is turning a profit at the moment, but as I’ve said previously, I’ve not seen evidence of that.  I have seen a large number of long term voids in the centre, and with the potential for these to increase in number I fear the profitability may be marginal or likely to decline.

There will also be ongoing running costs for the centre and presumably additional investment to do whatever it is with the place that they feel will revitalise it.  Again details on that are sketchy, but I think there’s some talk about dividing the larger units into smaller ones to attract independent retailers.  Whilst I support that idea to some extent there are a lot of things to consider about that course of action.

Firstly the cost of doing the work, which may include major re-modelling of the units due to, amongst other things, fire regulations.  I’ve seen at least one shopping centre management come unstuck with similar plans due to rules on access to fire exit routes.

Helping Smaller Retailers?

Secondly smaller independents usually don’t have a huge budget for shopfitting, so there will be additional cost in partially fitting out the units, including new shopfronts etc to attract smaller operators and to ensure that their stores fit in with a modern shopping centre scheme.

Business Rates

Thirdly there’s the loss of business rates on the empty units that are there now, and will most likely be there for a while.  Considering the current climate in retail there’s also a good chance that voids could increase.  At the moment the landlords will be paying rates on those premises even though they’re empty and a good deal of that money goes to CDC.  With the council now being the landlords, they’re going to be paying the rates to themselves, effectively wiping out that income.

Devaluation of the Asset

Finally there’s the issue of valuation.  Shopping developments are broadly valued on their rental potential.  This is why landlords will leave units empty rather than let them out at a reduced rent.  If the council’s plan is to lower the rent for smaller or other retailers, that will have a knock on effect on the value of those units and then on others when rent reviews come around.  Other tenants now paying a higher rent will also push for a reduction when their leases come up for renewal or rent reviews are due or maybe even before.

The net effect of this would be to push down rents, not only in the centre but across the town, reducing loan to asset values across the board.  In broad terms I’d welcome that.  I’ve long argued that retail property values are hugely inflated.  But in terms of the Council’s investment exposure in Castle Quay it’s a potentially dangerous situation, not only leading to a potential devaluation of the asset, but also any loans secured on it being partially called in.

There may be some balancing in terms of appreciation on the total asset value, but in the current climate and in a falling retail market, there a very good chance that the overall value of the scheme will fall relative to the amount the council has sunk into it, both as an initial investment and any further day to day expenditure.

All of this appears to have passed Cherwell Councillors and the leaders of Labour and the Conservatives by.  They obviously have a very patchy understanding of how retail property works and the implications and pitfalls they are letting us all as council tax payers in for.

Moreover there’s the question of if so much money should be focussed in the north of the district while ignoring other areas.  Mr Wood commented in the Radio debate on Wednesday that he recognised that there were empty units in Pioneer Square in Bicester and that it was difficult to get them filled.  Yet this doesn’t seem to have concerned him over the purchase of Castle Quay.  Indeed, having set the precedent in Banbury I asked him during the debate if the council intended to buy Pioneer Square as well.  He didn’t reply.

Other Options

A more sensible and prudent approach to the problems in both areas would be to work with the landlords rather than bailing them out with public money.  Leave them with the risk whilst introducing local initiatives that help smaller retailers get a foothold and would also support the centre.

These could include rates reductions, which Barry Wood dismissed out of hand when I challenged him on it during the election debate.  Neither he nor Sean Woodcock appeared to know that it has been within the gift of local councils to reduce rates on specific properties at their discretion for several years now.

If they wanted to provide smaller, more affordable space for independent retailers, they could lease units from the centres on a medium to long term basis, probably negotiating favourable terms with the landlords as a council will have a very good covenant.  These could then be divided up (if required) and then sublet on flexible terms on reduced rents to retailers, although this would have to be agreed beforehand with the landlord for the same reasons discussed above concerning rental levels and valuations.

This would achieve the same aim of revitalising schemes both in Banbury and Bicester and would not involve the council in risking large amounts of public money.  It would also mean that the bulk of the £60m they are now tying up in one area could be spread across the district.

This is the kind of strategic thinking we need, rather that the amateurish speculation of a council who seems to want to play at being shopkeepers with our money.  This is why we need a more diverse representation on the council and councillors like me who will challenge these misguided moves before millions of pounds of desperately needed council funds are put at risk.