A number of Welsh local planning authorities are currently engaged in reviewing their Local Development Plans and calling for new candidate sites.

In order for a site to be included in a development plan, the Welsh Government requires it to be viability tested – to assess the end value of a scheme against its costs to make sure it can be delivered. The idea is to ensure allocated sites are not left undeveloped because of financial challenges.

Getting land allocated in a development plan is especially important in Wales, where the removal of the five-year land supply requirement means that it is now much harder to get planning permission for sites not already allocated for development.

This early-stage viability assessment applies to employment sites too, which raises a particular challenge in Wales, where due to relatively low commercial property values, employment schemes may only become viable where buildings can be pre-let to tenants before development begins, or where developers are able to secure grant funding to assist with the costs of delivery.

Pre-letting a building improves its end value due to the assurance of rental income at practical completion, removing letting voids and providing a degree of certainty to a developer and their funders. The amount of additional investment value created by a pre-let will depend on the nature of the tenant, the length of the lease and other factors, but it can dramatically improve value –possibly as much as doubling a building’s vacant possession value – which improves the viability of the scheme when fed into the assessment.

Grant funding improves the cost side of the equation, and may be used to overcome abnormal ground conditions or make improvements to a scheme’s energy efficiency.

However, at this very early stage where sites are first being considered as having development potential, it is extremely unlikely that landowners or promoters will have had any discussions with future occupiers or providers of grant monies, let alone have any binding agreements in place.

Such agreements would themselves be contingent upon planning permission being granted, and so a chicken-and-egg situation arises. In Wales, a viability appraisal which doesn’t take account of either of these things is likely to show an unviable scheme in the majority of cases.

New development, and particularly development of new employment space, can bring significant economic and social benefits. If commercial schemes are required to demonstrate they are viable at such an early stage in the development process, it is crucial that local authorities are prepared to accept viability assessments that make reasonable, positive assumptions about the likelihood of achieving pre-lets.

This approach will ensure that the viability process can be a positive part of the planning process, helping local authorities allocate the best sites, and avoids an overly prescriptive approach which could prevent much-needed investment coming forward.

Landowners considering putting their sites forward for consideration should seek professional advice – the current deadlines for candidate sites in South Wales are:

• Vale of Glamorgan – 13 September 2022
• Rhondda Cynon Taf – 30 September 2022

Further information

Contact Andrew Weeks

Savills Rural Development