Harworth: Budget must rectify path to regeneration

Harworth’s latest results would have been broken records – if September’s mini-Budget hadn’t broken the economy. The regeneration company posted a record year on all operational fronts. Land sales for 2022 were double those of 2021 at 2,236 plots – above valuation. It boasted record direct development of grade-A space, delivering 432,000 sq ft of its 35m sq ft industrial and logistics pipeline. Lettings were strong and occupancy stands at 99%. This all would have led to record NAV growth and earnings, if performance hadn’t been ‘dented’ by the market yield moves following the mini-Budget. Instead, all of that hard work was swallowed up, total returns slumped from 26% last year to 0.1%, and profits dropped 65% to £44.5m. “It is frustrating to have gone backwards,” says Harworth’s chief financial officer Kitty Patmore. “The positive is that while the market has shifted quite a long way backwards, we haven’t. It is quite a confirmation of our business model.” Lynda Shillaw, chief executive at Harworth, said: “I’m just going to say ‘what she said’, because you would have got a ten-minute rant from me!” Fortunately, Shillaw adds, regeneration is a long game. When you have pipelines and projects that span decades, quick gains and yield compression isn’t the focus. Over the past five years Harworth has delivered £275m of value gains and an average annual total return of 9.8%. Shillaw says it is still on target to become a £1bn company by 2027. Some of the firm’s 2027 targets have already been hit. It wants to sell 2,000 housing plots, and sold 2,236. The 15-year pipeline has been maintained and even extended. And while just 432,00 sq ft of industrial and logistics space has been delivered off a target of 800,000 sq ft, more than 6m sq ft is in the pipe to be delivered by 2027, with more than £1bn GDV. “We have the pipeline to meet that target,” says Patmore. “We always anticipated a bit of a run-in in 2022 and 2023 while we were putting in place the infrastructure works and creating a development platform. And then we always anticipated actually having a real focus on the vertical build, subject to market conditions, over 2024-26. The 800,000 sq ft was an average. This year will be one where there’s a little bit less, and then next year there will be more than that.” Significantly more. Harworth is on site with the Chatterley Valley scheme near Stoke, which will deliver 1.2m sq ft in “fairly chunky units”, Shillaw says. And then there is the 1.1m sq ft at Wingates, near Bolton. Schemes in for planning at Gascoigne and Skelton will also deliver more than 2m sq ft. Meanwhile, the seemingly wide gap between the 17% of space in the investment portfolio classed as grade-A and the 100% target is narrowing quickly, as more development is brought on line and older kit recycled out. But with the last budget effectively to blame for raining on Harworth’s results, what one thing does Shillaw want from tomorrow’s Budget? “Oh God! Can I have two things? Planning reform – a planning system that actually, genuinely supports growth. And to make sure that there is some sort of stimulus for the housing market. “To be blunt, the planning system quite simply does not support growth and investment. Local authority planning teams are too stretched, volumes of applications have increased and the technical side of what they have to look at has ramped up with environmental legislation being passed.” Under-resourced local authorities are facing “an almost perfect storm”, with added burdens on time and skills coming from biodiversity net gain requirements, nutrient neutrality, and issues with power supply and grid connections. Shillaw is underwhelmed by the prospect of 12 investment zones costing the exchequer £1bn, because they “won’t be anywhere near where we are”. “If we want regeneration to be successful, we have got to be building the right things in the right places,” she says. Patmore adds that levelling up needs to be about more than little pots of money that appear to be “pinched from elsewhere”. Shillaw’s message to this chancellor is clear: “If you want to invest in regeneration, if you are serious about regeneration, you have to invest in planning reform.” To send feedback, e-mail piers.wehner@eg.co.uk or tweet @PiersWehner or @EGPropertyNews Image courtesy of PR