Network Rail regulation and performance

Understanding the sale of the arches

David Biggs, managing director of Network Rail Property, sheds some light on the sale of the infrastructure owner’s commercial estate.

We announced last month that we’d agreed terms with a joint venture of Telereal Trillium and Blackstone Property Partners for the sale of our commercial estate.

We explained that proceeds from the £1.46bn transaction will help fund the railway upgrade plan, bringing major improvements for passengers and reducing the need for taxpayers to fund the railway.

We clarified that the estate is being sold on a 150-year lease, and that we will retain access for railway operation and maintenance.

We sought to reassure tenants that it would be business as usual, if not better, after the sale.

But we understand that change can bring uncertainty, especially change on this scale, and we know that there are still concerns and unanswered questions.

As the sale concludes, it’s important we address those concerns, confront the rumours, and explain more about why we’re selling and what it means for the thousands of tenants who make their living on our commercial estate.

Our portfolio

We are one of the largest providers of commercial space for small- to medium-sized businesses in Britain. Our commercial estate is made up of thousands of properties, offering an unparalleled choice of business spaces in fantastic locations the length and breadth of the country.

The majority are converted railway arches, home to entrepreneurs who have set up shop beneath the tracks with everything from garages to gyms, breweries to bakeries, hairdressers to theatres, bars, cafés and restaurants, providing services and entertainment in the most unique, innovative and vibrant of places. We’ve supported these small businesses to succeed and we’re incredibly proud of the thriving communities they’ve created. They also bring in a steady rental income.

So why would we sell?

We are selling because ultimately our role is to run, improve and grow the railway, and managing commercial estate properties isn’t essential to that.

Proceeds from the sale will be reinvested into the railway, helping to fund the biggest transformation programme since Victorian times.

In the next few years there will be an extra 170,000 seats into major cities across the country every day, with 6,400 extra train services and 5,500 new train carriages – a 30% increase in capacity. We’re investing

£130m every single week on these essential improvements but, in a nutshell, we have a funding gap.

It was recommended in the Hendy Review back in 2015 that the sale of the commercial estate would help to plug this gap. We need the capital investment now to continue with the railway upgrade plan.

The commercial estate sale will reduce the need for taxpayers and fare-payers to fund these improvements, and will allow us to focus even more on our core business of running a safe and growing railway.

Changing hands

We’ve also invested heavily in the commercial estate over the past decade, but pressure on funding in the last couple of years has meant that investment has not continued at the same levels.

We’re not in a position to invest in the future, but a new owner can.

Graham Edwards, co-founder and chairman of Telereal, has said their ownership of the portfolio will provide a supportive environment in which these businesses can flourish on a long-term basis, and has confirmed that their business plan anticipates investing in several hundred currently disused arches so that they can provide space for more local businesses.

So the money from the sale of the commercial estate will be ploughed straight back into the railway for the benefit of taxpayers, passengers and the wider economy, and the new owners will invest in the estate in a way that we simply can’t. That’s why we’re selling.

Easing concerns

We know that tenants still have concerns though. We know they’re fearful of increased rents, or being forced out so that high-street chains can move in. They have said they are worried about an uncertain future under a new landlord, and that they believe the new owner will focus only on making money for investors, not caring about the small businesses under the arches.

We can’t speak on behalf of the new owner, and we can’t predict what will happen in 10 or 20 years’ time. We couldn’t say what would happen if we had remained the landlord.

But we can confirm that the winning bidder went through a rigorous and thorough process, and that all current obligations to tenants will be met.

The new owners

The new owners, Telereal and Blackstone, have stated they intend to be long-term owners of the estate.

They both have long and successful track records of operating large commercial estates. They have committed to a tenants’ charter, which offers protections for tenants and is included in the legal agreements of the sale.

They are developing initiatives, such as a pledge to engage with tenants openly and clearly; opportunities for discussion around rent reviews and working with those facing financial pressure; written reports on the mix of uses within the estate; and the launch of a comprehensive tenant consultation to understand concerns, with the results used to develop an enhanced tenants’ charter.

They understand that long-term success rests on strong relationships with tenants. They have acknowledged the uniqueness of the portfolio and the importance of this vital part of the UK economy.

We have so many success stories on our estate. We’ve supported independent start-ups; we’ve helped businesses as they’ve outgrown their premises and moved to more suitable ones; we’ve created cultural hot spots and neighbourhood hubs.

We’re incredibly proud that we have developed such a thriving and eclectic estate, and this is what the new owner has bought. A hugely successful, unique and entrepreneurial community that can be invested in and revitalised.

We expect the sale to be completed by the end of the year, at which point Telereal Trillium and Blackstone Property Partners will be the new landlords.

Meanwhile, we’re continuing our essential work to upgrade and grow the railway for the benefit of the millions of passengers who use the network every day.

Enjoying RTM? Subscribe here to receive our weekly news updates or click here to receive a copy of the magazine!