Unviable made viable
A viability assessment of the huge Canada Water regeneration scheme shows how it can be profitable, and deliver 35% affordable housing (25% social rent, 10% intermediate) despite the claim of developer British Land (BL) that will lose money and so cannot supply any affordable housing.
The viability assessment was prepared by BNP Paribas, for Southwark Council and is an appraisal of British Lands own assessment, by their agents Quod. It states that a profit of 13.77% GDV (Gross Development Value) is possible, noting that this is 'marginally lower' than BL's profit target of 16% GDV. [NOTE it is also considerably higher than the 8% profit BL agreed to when it secured planning permission].
BNP's report dates from Mar 2025 and reviews Quod's report of Jan 2025 [NOTE, further docs Quod - July, Aug 2025; BNP - Oct 2025]. BNP notes that Quod’s report is lacked supporting evidence, and that BNP had made some changes to values that disagreed with, or thought wrong. BNP also applies a 'placemaking' factor to the calculations. This is the tendancy of residential values to rise as a long-term development progresses and leads BNP to conclude [SCREENSHOT- BNP Mar 2025, pg 17]
'.... our appraisals indicate that the amended Masterplan Scheme incorporating 35% affordable housing could generate a profit of up to 13.77% of GDV, which is marginally lower than the blended target return of 16% of GDV'.
BNP also tests a 'baseline' scenario, without the placemaking factor, which incurs a loss of -0.23% GDV. Quod's assessment of the same scenario sees a loss of £4.93% (£271m), and concludes that 'the maximum viable level of affordable homes when targeting 16% profit on GDV is nil'.
Inefficient floorspace
BNP also note that the ratio of revenue raising to non-revenue floorspace is 'inefficient', at a level of 68%, when 70-75% is more common.
[But it reaches its 13.77% conclusion without improving the efficiency?]
The overall net to gross ratio is 68%, which is relatively inefficient, with developments typically achieving 70% to 75%. The efficiency has improved by 3% in comparison to the Extant Masterplan Scheme. Given that much of the scheme is currently in outline only, there may be opportunities to achieve a higher efficiency through the detailed design process. Potential improvements could be identified through a viability review mechanism when reserved matters applications are submitted. [BNP Mar 2025, 2.2.1, pg 7]
The Masterplan Development Agreement (MDA) - a good deal for Southwark?
The CW situation is complicated by the fact that Southwark was not just the planning authority (the Mayor has taken over the decision), but also had a 20% stake in the development under a Masterplan Development Agreement.
According to the planning committee report that recommended approval of BL's Canada Water scheme, Southwark could sell this stake as the develpment progressed, if it chose, according to a 'financial arrangement' wIth BL. Southwark could also buy the social rented housing, and possibly the intermediate housing, as they were built. BL was committed under the MDA to build a leisure centre in the first phase, with Southwark paying a contribution of no more than £35m [Officer report, 25 and 30 Sept 2019, 18/AP/1604, para 15].
The viability assessments confirm these arrangements. They note that Southwark has paid £18m for the 79 affordable housing units on Plot K1, near to Robert's Close and that it has made the maximum £35m contribution to the leisure centre [SCREENSHOT - Quod Jan 2025 7.15]. They also note that construction cost of the centre as £9.7m [SCREENSHOT - Quod Jan 2025 App B pg 54, 55] and that BL had paid SDLT of either £2,695,500 or £530k to acquire the lease, at a cost of £8.7m (+VAT)[SCREENSHOT - Quod, Jan 2025, 7.2.1; July 2025, 2.35], with the centre being leased to Southwark at a peppercorn rent [SCREENSHOT - Quod, July 2025, 2.10]
Is this a good deal for Southwark? How long does arrangement last? Helps BL with upfront payment of rent?
Two values for the SDLT Leisure Centre;
SDLT Leisure Centre £2,695,500 - Quod, Jan 2025, 7.2.1
SDLT Leisure Centre £530,000 Stamp Duty payable on the acquisition of the leisure centre lease (£8.7m + VAT), equating to c.£500,000 - Quod, July 2025, 2.35
Money developer gets
£18m for 79 affordable units
£35m for leisure centre (build cost £9.7m)
c£37m CIL relief, if 35% aff h (BNP Oct 2025)
£39m GLA a/h grant
£40m further public funding? (BNP Oct 2025)
What we think
It's difficult for the layperson to judge the respective merits of BNP's and Quods' viability assessments. What we can say is that the answer to the main question - how much profit will be made? - cannot be answered definitively. BNP and Quod demonstate this; they both argue within the agreed (RICS) framework for establishing viability. Quod notes that they approached the question on a collobative basis (July response), with agreed values where possible; their disagreements are relatively small, but differences of one or two percent can have a disproportionatley large effect in the calculation of how much. or little, profit can be made.
The disagreements between BNP and BNP can also be explained by the different interests they represent. While both are governed by a professional code, which they undoubtedly follow, it is not a surprise that BNP emphasise the potential for profit, while Quod are more sceptical. More profit means more affordable housing for BNP's client, Southwark Council; less profit means less affordable housing, and more free-market houisng for Quod's client, British Land, when this has five times the value of socia rented housing (CHECK; £1,200psf V £220psf). The situation naturally makes BNP's projections optimistic and Quod's pessimistic.
When the result of viability assessments is so highly contested, and so dependant on marginal differences, it is not sensible for them to be the determining factor in planning decisions. This is recognised to a degree by the National Planning Policy Framework (NPPF), which allows the decision-maker discretion in the weight they give FVAs (REF)
It is also inherently unlikely that a London development of 3,700 new homes (and xxx sgm of retail) on a site with lots of empty space, and two underground stations on its doorstep cannot make enough profit to include affordable housing.
To cap all this, there is no viability assessment of the actual scheme that is to be built, were BL to succeed with their s73 application. Quod assesses an 'illustrative' scheme of 3,700 residential units, many more than the 2,xxxx units BL have planning permission for, but without including the student, co-living and later-life residences, whose steady income streams make them a popular alternative to traditional houses, for developers [CHECK]. BNP make their own changes to the illustrative scheme (and also test the concented HPP scheme?), but they too do not test a scheme with the s73 amendents [CHECK].
The Mayor should............
Stage 2 report.