The upcoming New Street development is one of the most exciting retail developments to take place in Birmingham in recent years, with the 40 retail units and 20 new restaurants expected to create employment for up to 1,000 local residents. However, the future management and ownership of the development has this week been thrown into doubt by an announcement by the Office of Rail Regulation (ORR) which has questioned whether a proposed purchase by Network Rail would deliver value for money to the taxpayer.
State-backed Network Rail is currently holding discussions with Birmingham City Council with a view to acquire the Grand Central complex for £200 million when the scheme is completed next year. Any deal would have to be approved by the ORR, however, which at present seems doubtful.
Strategy and policy director at the ORR, Daniel Brown, claims that the “business case for the acquisition is not compelling” for a number of reasons.
He continues; “Network Rail has chosen not to seek a completely independent valuation in recent months, nor are we satisfied that Network Rail’s own due diligence process has included robust stress testing of the internal valuation and a comprehensive risk assessment.
“However, we consider that such a valuation and risk assessment was needed to ensure that Network Rail’s business case and due diligence process was demonstrably robust.
“Network Rail needs to invest where it considers that it will make the highest rate of return for that investment – on the basis of the data and models we have seen, the acquisition of the Grand Central shopping centre does not appear to provide sufficient value for money.”
At present, Network Rail is heavily involved in the £750 redevelopment project taking place at New Street Station which adjoins the Grand Central shopping centre. Yet it is also embarking upon a five year capital spending programme as a means of boosting its UK assets, with the acquisition of Grand Central playing an instrumental role in this.
The announcement by the ORR has no doubt caused a feeling of disquiet at Network Rail, yet the operator – which currently runs 20,000 miles of Britain’s rail track – is adamant that Grand Central would prove to be a profitable investment in both the short and long term.
A spokesman for the operator said; “Network Rail’s commercial property activity plays an important role in helping to fund Britain’s rail network: all proceeds from these commercial activities are reinvested into the railway helping to build a bigger, better railway.
“The company is one of Britain’s largest small and medium-sized business landlords and operates over 500,000 square feet of retail space at its stations up and down the land.
“While no decision on the future ownership of Grand Central has yet been made, the company can confirm it is in discussions with Birmingham City Council about a potential purchase, but an outcome is many weeks away – any decision would be subject to the approval of the Office of Rail Regulation and the Department for Transport.”
Do you think Network Rail should be allowed to buy Grand Central?
Previous Post
Tokyo tops Asian Market
