Will the economic slowdown impact on the planned regeneration of the Thames Gateway region? Richard Ellard reports

For a number of years the Thames Gateway project has been described as 'Europe's largest regeneration programme', with a Government commitment to invest more than £9bn. The Thames Gateway Delivery Plan states that "the success of the Gateway is key to the wider UK economy and ensuring that London remains a global capital".

The plan features ambitious construction targets and spending commitments which were made before the current economic turmoil.

The Thames Gateway – what is it?

The Thames Gateway is a number of separate regeneration projects within a 40-mile area between Canary Wharf in London, Southend in Essex and Sittingbourne in Kent. Key objectives of the plan include the creation of 225,000 new jobs and the construction of 160,000 good quality new homes.

So far, the regeneration plan has resulted in the new high-speed international and domestic rail line at Ebbsfleet and a £1.5bn project for a new container port and logistic park in south Essex.

The size of the project is demonstrated by the Land Securities scheme at Ebbsfleet Valley. Situated close to the new Ebbsfleet International railway station, it will accommodate 9,500 new homes. Projections suggest that 25,000 new jobs will be created by this project alone over the next 15 years. In July this year, planning permission was granted for a phase known as Northfleet Rise, which in itself will provide 1.7 million sq ft of development, including commercial units and in the region of 464 new homes.

Southeast property market

During the past 15 years the property market in the UK's southeast region has been booming. Some of the largest increases in land value, rents and house prices outside London have occurred in the area. Even the towns within the Thames Gateway with significant economic and social challenges have benefited. House prices in Gravesend, for example, rose in 2007 by 11.6%. However, 2008 has been a different story.

Speaking to estate agents across the Thames Valley, the message is the same: the investment market has almost completely dried up, land values are falling and the housing market is stagnant.

The rental sector is less predictable but generally leases are getting shorter, gaps between tenants more common and rental levels flatter. These messages strongly suggest that the property boom is over.

Will the slowdown in the economy and the property market stall the regeneration plans in the Thames Gateway area? David Liston-Jones, the chief executive of the Thames Gateway Kent Partnership, commented: "The credit crunch will clearly impact on businesses and communities everywhere, and the Thames Gateway cannot expect to escape from its effects. However, the massive public investment which has gone into the area in recent years, and which will continue in the future, will help us.

"It is important to recognise that the Thames Gateway is a long-term endeavour. Over the coming years there will be periods of slowdown and periods of faster growth, but the focus will remain on delivering the Thames Gateway programme and on creating a new and sustainable economy in the area."

Taking the long-term view appears appropriate given that the larger projects will take 20 years or more to complete. It is likely that we will go through a number of economic cycles during such a long development programme.

These thoughts were echoed by the regeneration bodies Swale Forward, Kent Thameside Regeneration Partnership, Medway Renaissance and South East England Development Agency (SEEDA).

Flexible structures

Swale Borough Council is currently planning for the regeneration of Sittingbourne town centre. The scheme will be mixed-use and is valued at £500m. I asked whether the current economic climate would impact on the council's aims and objectives. The answer I received is that the long-term goal of the regeneration of Sittingbourne town centre will not change.

What will change is how the council achieves this objective. For example, residential flats will be built in the second rather than the first phase – the assumption being that demand will pick up further into the development programme. In order to ease cash flow, the council may have to structure the project by sharing the upfront risk with a backer, in return granting them a share in future profits.

SEEDA

The regional development agencies (RDAs) have recently seen £300m cut from their budgets. The RDAs have not stated how this will impact on the projects they are involved in, but it is clear that there will be some tough funding choices to be made in the future. SEEDA commented that it will be looking to access European Union (EU) funding for specific projects.

Although RDAs are accountable to the tax payer, they have no share prices to worry about and one of their stated key objectives is to facilitate regeneration. As a result, most RDAs can structure land deals more flexibly, with the possibility of allowing payment later in the process.

Infrastructure and public projects

Much has been made of the Government continuing with major infrastructure works in order to keep the construction industry going. For example, SEEDA has been involved with a £5m infrastructure project in Queensborough and Rushenden, in north Kent. The new road will open up a large part of land for development in the future.

Meanwhile, Medway Renaissance has confirmed that it will continue to invest in infrastructure and public projects. Currently it is working on the design, planning and infrastructure elements for a number of schemes.

Private and public sector infrastructure projects in Kent Thameside include the £185m Kent Thameside Strategic Transport Infrastructure programme, in which Land Securities are also investing £40m over the next 12 years; and the £10m refurbishment of Dartford and Northfleet stations including the installation of a pedestrian link between Northfleet station and Ebbsfleet International.

The future

The next couple of years will be characterised by developers only carrying out work they are contractually obliged to do. Already there is evidence that some developers are trying to renegotiate deals in terms of price and structure. As a result, many development agreements, conditional contracts or option agreements may find their way to litigation departments.

If house prices continue to fall, then developers are unlikely to want to buy land or build properties. There is a risk that the Thames Gateway may end up with fantastic infrastructure, but very little development activity. If the industry slows down too much, then there is a worry as to how long it will take to gear up again when the economy does turn.

One message that came across from SEEDA and Medway Renaissance is that the integrity of developments will not suffer despite current market conditions. Matters such as sustainability and design will not be ignored just to get properties built. There is enough confidence in the brand of the Thames Gateway and the long term objectives of these agencies to hold firm on this point, at least.

Richard Ellard is a partner in Thomson Snell & Passmore and is based in the Thames Gateway office.