Financial Appraisal Report Content

Section 1 – The Design Concept

The area of Site B is 13200 m2. Considering that the convenient transportation access to Site B but the poor environment of it, it is described as an industrial centre of Neepsend with workshops, offices and necessary facilities in the Neepsend AAP. Based on the instruction of AAP, a considerable number of new buildings will be constructed for live-work accommodation, art workshops, office, restaurants, cafes, pubs, bars and a hotel, while the House Skate Park will be preserving. The sketch plan of Site B is shown in Figure 1.

The new buildings for live-work accommodation (3 floors) and art workshop (2 floors) are adjacent to each other at the north-west corner of Site B, with 10% and 13% of the site coverage respectively. An office building (4 floors) with 12% of site coverage and a mix-use building (6 floors) for restaurants, cafes, pubs, bars and a hotel will stand at the middle of the site. Moreover, there will be a new multi-storey car park (3 floors and 8% of the site coverage) and pocket green park at the east corner of Site B. The rest area of Site B consists of hardstanding (20%), footpath (3%) and roads (8%). The specific coverage of diverse usages and floors of buildings are available in Figure 2.

Figure 1: Sketch plan of Site B.

Source: The map from DigiMap. Edited by author.

Figure 2: Buildings and Site Coverage of Site B. (The area of Other includes the buildings of skate park, restaurants, cafes, pubs, bars and a hotel.)

Source: Author’s own.

Section 2 - Initial Financial Appraisal

The total land costs of Site B are £3,775,200 (13,200 m2 and 285 per m2) (Figure 3). Then, based on the description in Neepsend AAP that the land prices and rents are lower than the others area around the city centre and positive expectation of that, all the unit costs of various buildings used in the calculation of construction costs are the average ones and the construction costs are £20,542,064 (Figure 4). When it comes to the valuation, most of the prices or rents used in the calculation are not the average ones. Considering the shortage of parking space and the number of non-native population in Neepsend, the rent of multi-storey car park is the largest one (60 of 50-60 per m2) in the rent range, while that of the hotel is the smallest one (100 of 100-120 per m2) (Figure 5). The rents of others are a bit lower than the average numbers. Subsequently, the residual value of Site B is £1,803,902 and the developer’s profit is 6.1% (% on cost) (Figure 6).

Figure 3: Land Costs.

Source: Author’s own.

Figure 4: Construction Costs.

Source: Author’s own.

Figure 5: Valuation.

Source: Author’s own.

Figure 6: Financial Appraisal 1.

Source: Author’s own.

Section 3 - Design Analysis

1. Development Density

Through changing the development density of the scheme (the gross floor space of each building increased by 10%) and keeping the mix of uses and building specifications constant, the new profit reaches 8.09%. The respective figures in the CONSTRUCTION COSTS and the VALUATION pages of the spreadsheet are changed as follows:

Building	Original m2	Revised m2
Multi-storey car park	3168	3485
Offices	5034	5537
Art workshop	3432	3775
Live-work accommodation	3960	4356
A hotel	4940	5434
Pubs and bars	1320	1452
Restaurants and cafes	1320	1452
Total	23174	25491
Developer’s profit	6.10%	8.09%

Table 1: The Change of Each Building-1.

Source: Author’s own.

2. Mix of Use

Through changing the mix of uses in the scheme (transfer 10% of the total gross floor space between the two largest uses- from offices to hotel) and maintaining the original amount of gross floor space and specification level, the new profit is 0.64%. The respective figures in the CONSTRUCTION COSTS and the VALUATION pages of the spreadsheet are changed as follows:

Building	Original m2	Revised m2
Multi-storey car park	3168	3168
Offices	5034	2717
Art workshop	3432	3432
Live-work accommodation	3960	3960
A hotel	4940	7257
Pubs and bars	1320	1320
Restaurants and cafes	1320	1320
Total	23174	23174
Developer’s profit	6.10%	0.64%

Table 2: The Change of Each Building-2.

Source: Author’s own.

3. Building Specification

Through changing the scheme’s building specification (increase the construction costs and rents by 10%) (Figure 7) and maintaining the original mix of uses and amount of gross floor space, the new profit reaches 6.80 in Scheme Valuation B (Figure 8).

Figure 7: The Change of Building Specification.

Source: Author’s own.

Figure 8: The Result of Analyzing change.

Source: Author’s own.

4. A comparative analysis of the results

After conducting design changes of the same proportion (10% in this case) through three comparative approaches, the result indicates that two (Approach 1 and Approach 3) enhance profitability but the other (Approach 2) reduces it (Figure 9). On one hand, Approach 1 (Development Density) and Approach 3 (Building Specification) are slightly similar. Although the construction costs will arise with the increase of density or specification, the land costs are fixed, which means the unit development costs are reduced. As a result, the developer will gain a higher profit rate through the two approaches. On the other hand, the developer’s profit rate decreases as the proportion of the offices are given over to the hotel in Approach 2, and this shows a larger proportion of more profitable land use can bring developers a higher rate of profit.

Figure 9: The Comparation of Design Change.

Source: Author’s own.

Section 4 – Balancing Design and Profitability

As calculated above, the current rate of the developer’s profit is only 6.10%, lower than 15%, which will have an impact on the viability of the current development proposal. Considering the foregoing comparative analysis, enhancing the proportion of high-profit land use (for offices and hotels) or the density of high-profit building is a practical approach to create more profit and make the proposal more viable.

However, some related policies might limit the scope of the changes. As Policy CS74 from Sheffield Development Framework Core Strategy (2009) recommends that the development should be of high quality and ensure the needs of all residents being met, the space generating non-value but helping improve the quality should not be removed. Besides, the City Centre Living SPG (2015) states that car parking is not necessary beyond the provision of disabled spaces, which means the parking space is important for Neepsend considering it is adjacent to the city centre. In a word, the green space, hard landscaping and car park should be preserving.

Consequently, to balance design and profitability, the current profit rate might be enhanced by increasing the density of some high-profit buildings- offices or changing the mix use- decreasing the proportion of the hotel and enlarging that of offices.

References

1. Sheffield City Council (2009). Sheffield Development Framework Core Strategy [online]. Available at: https://www.sheffield.gov.uk/content/dam/sheffield/docs/planning-and-development/core-strategy/Core-Strategy---adopted- March-2009--pdf--6-55-MB-.pdf [Accessed 28 April 2020].

2. Sheffield City Council (2015). City Centre Living Supplementary Planning Guidance [online]. Available at https://www.sheffield.gov.uk/content/dam/sheffield/docs/planning-and-development/sheffield-plan/City%20Centre%20Living%20-%20SPG%20Update%20Dec%202015.pdf [Accessed 28 April 2020].