Dealing with empty shops: Leicester City Council

The Gresham Works project outlines how the creation of a flexible business workspace by a local authority within a private sector led development can lead to significant regeneration benefits.


Introduction

The historic and iconic Fenwick building in Leicester is being converted by a private developer into an aparthotel with a series of ground floor and basement commercial units. By providing an anchor tenancy for the project, the council has enabled the developer to secure commercial and public sector investment finance for a major £17 million mixed use scheme. This intervention has given investors and the developer the confidence to commit to the scheme.


Powers used

  • Planning tools
  • Asset management
  • Civic leadership

The challenge

Leicester is a compact city centre, although hasn’t given over to high rise, and has retained a legible quality. Market Street is the main shopping street to the east of the city centre on the edge of which used to be the well-loved Fenwick department store that closed in 2017 and has been vacant since then

The property was bought by a private developer in 2017 with the primary proposal of change of use to a hotel. This was due to the growing tourism in Leicester following the discovery of the remains of King Richard III. The total planned cost of the scheme was £17 million. The developer had private capital funding, and also applied for a loan from the LLEP of £4 million. A bank loan was also then needed, but the developer was unable to confirm this finance, and could not begin the project.


The solution

The council manages a successful and popular commercial portfolio of workspaces including the LCB Depot and Dock. This work is partly in response to growing vacancy, to fill under used or empty properties and by doing so inject life back into that area. The council have found that workspace schemes are good for this type of regeneration; for example the LCB Depot was the first major public sector intervention in 2004 that kickstarted the creation of Leiceser’s Cultural Quarter. The council are therefore always looking for projects with this potential and are alert to opportunities in the city that could provide a flexible approach to regeneration.

The council were aware of the challenge the developers were facing around financing the redevelopment, and therefore approached the developer with the idea to take on a head lease to establish a flexible co-working space, which was accepted.

Negotiations between the developer and the council began in 2019, and the lease agreement was signed in early 2020. Once the agreement was signed, it meant that the developer could complete and secure a commercial development loan and begin the refurbishment work.

The agreement meant the council could manage a substantial part of the ground floor and basement of the Fenwick building to establish the workspace. This was aided by the fact that the council have a strong covenant and are well regarded as a strong occupier with guaranteed revenue. The council signed a 25-year lease with the developer and committed £450,000 funding for fit out and set up costs for the workspace. The developer then managed the whole capital development, including delivering the ground floor and lower ground spaces to be managed by the council, and agreed the design specification with the council. Following completion of the work which is scheduled for later in 2021, the council will operate the space.

This case included the need for planning permission, as it relied on the change of use class from retail to hotel and workspace. The planning department were supportive of the scheme and had a proactive and enabling attitude. The approval of the change of use was a significant enabler for the scheme to go ahead. The redevelopment will provide a 121 bedroom hotel with a ground floor lobby and reception, a bar, a gym, and the council managed workspace on the ground and lower ground floors. It also includes six ground floor retail units.  The council’s flexible workspace provided an anchor tenancy for the project. This was a significant enabling intervention to give investors and the developer the confidence to commit to the scheme.

The £17 million scheme has been enabled by investment from several sources. The developer Aimrok has invested their own funds, secured a commercial development finance loan and a Growing Places Fund loan from the Leicester and Leicestershire Enterprise Partnership.

Using workspace as a catalyst for regeneration in this way is not formal policy but has been pursued as a strategy for many years. Schemes of this nature often generate a commercial return for the council, as well as delivering a range of other benefits such as job creation, business support and skills development. Types of centres and interventions such as the Gresham scheme that the council take on are also used as magnets for a broader community, as they create community hubs, as well as delivering wider place-making benefits. The council has received grants for previous schemes to cover the initial set up costs but always ensures that the initiatives are financially sustainable over the longer term.


The impact

The development project is due to complete later in 2021.  The scheme is expected to deliver a significant regeneration benefit for the Market Street and Belvoir Street areas in Leicester city centre which have been suffering from underoccupancy for some time.

Flexible ‘co-working' business workspace is an up and coming market, particularly attractive to new entrepreneurs, start-ups, sole traders and small businesses. The scheme will further increase the availability of this kind of business workspace in Leicester, and lead to the growth of new and existing SMEs and the creation of new jobs. Gresham Works will become part of the council’s portfolio of managed workspaces which are managed on a commercial basis.


Lessons learned

The council have learned through their existing commercial portfolio the importance of a flexible approach to regeneration. The agreement for the ex-Fenwick building is specific to the context; it’s a particular site with regeneration potential, there is perceived demand and the finances needed a public-private relationship to work together in order to be successful. Redevelopment is not a ‘one size fits all’, it’s important to consider the opportunity and challenges and how to pull the right levers to get the right deal with a bespoke approach.

The council also found that having an existing workspace portfolio was relevant for this scheme. They have an in-house managerial team that know how to set up and run these types of workspaces, and could be relied upon to work on this scheme.