Tuesday 22 January 2019

Tesco 'air rights' plan could offer solution for Ireland's housing crisis

The Clare Hall shopping centre, Dublin,
The Clare Hall shopping centre, Dublin,

Paul McNeive

In London last week, all the talk in property circles was about Tesco's announcement that it is embarking on a £1.5bn fundraising scheme to build thousands of apartments on top of 15 supermarkets in the London area.

As part of a radical plan to overhaul its estate and generate cash, Tesco is negotiating the sale to developers of the 'air rights' over stores and car parks and expects those rights to produce approximately £400m. This set me thinking about whether air rights could unlock potential commercial space here, or indeed, if they could form part of a solution to our housing crisis?

Selling air rights, that is, the right to build over retained buildings or land, is a relatively-new concept, and the economics of the strategy are driven by site value. Train and bus stations were among the earliest examples of overhead development across Europe as they provided large site areas, in city centres.

The strategy should be well-supported by planning policy here as there has been a strong shift towards mixed-use development in the more recent development plans. Traditionally, suburban sites at least, tended to be zoned for individual types of use, e.g., offices, or retail or residential, and tended to be developed in a piecemeal fashion. The problem with this was that commercial areas tended to become 'dead zones' at night and there was no integration of activities.

Now, planners prefer to see larger site areas, master planned, and incorporating a variety of complementary uses, such as retail on the ground floor and offices and apartments overhead. This leads to more intensive use of sites, and taller buildings, which makes complete sense, particularly near good public transport routes. Apart from Dublin City Council's ludicrously low height limits, so far, so good then, for our air -rights strategy.

We already have evidence that retailers will adapt the design of their supermarkets to suit site conditions and/or to allow overhead development. Schemes that come to mind include Tesco at Clarehall, Dublin 17, where the building is on stilts over the car park and shoppers take a travelator to the supermarket on the first floor. Tesco in Wexford has a similar design.

Galway's Eyre Square shopping centre has a scheme of townhouses built on top of the car park, while a planning decision is due next week on a supermarket for Lidl, with 550 student apartments overhead, on Brunswick Street, Dublin 7, which makes great sense, so close to the new Luas line. Charlestown Shopping Centre in Finglas has floors of apartments overhead, as does the scheme anchored by Dunnes Stores in Maynooth, Co. Kildare.

But there is a big difference between building overhead floors of apartments and offices when developing a new scheme, and coming back to do it years later. There aren't too many examples of that happening here, other than when Alanis developed an office building over the multi-storey car park behind the Jury's Inn in the IFSC, Dublin. Obviously, the increasing rental values in the IFSC made that viable, but it was also made possible because they were building on top of a car park, rather than a building that someone was occupying.

A problem with developing air rights is disruption to occupiers. A Tesco source told me that keeping the supermarkets open is paramount, and they will continue operating as redevelopment takes place. Cleaner, modern construction methods open up these possibilities and pod apartments, manufactured off-site, can be lifted onto rooftops by crane.

There are several parts to the economics of the strategy; the value of what you are creating overhead, the cost of doing it, and the effect on existing occupiers. But there are other positive factors to put into the mix. For example, a large boost to the retail sales at any scheme from the influx of new residents. Also, there are efficiencies, with residents mostly using car parking at night, when there is little demand from shoppers. Developers building today should look at future-proofing by upsizing foundations and structural frames, to allow for extra floors if selling the air rights.

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