A NEW DEPARTURE
5 June 2015 | Author: Graeme Craig, Director of Commercial Development, Transport for London
The case for investment in transport to unlock economic growth is now well established. Less well-embedded is the concept of driving substantial direct financial return through investment in commercial activities in and around the transport network.
Within TfL, the rationale for driving up non-fare revenues was simple. Our government grant has been cut over a number of years, and so to try and bridge the gap and to enable us to bear down on fares, we set up a commercial development team which gathered together the management of all non-fare income throughout the organisation.
By developing our own under-used assets we can make local improvements to our stations while generating substantial revenue that can be reinvested in the London transport network. We now have a programme that will raise £3.4bn in net revenue over the next ten years, a 40% increase from what was previously proposed.
If this is done well, there are huge benefits and no downsides. Then again, the task should not be underestimated. It requires, above all, an organisation with the confidence and time to plan commercial issues. Day-to-day operations must be under control to create the headroom for commercial activity to be planned. Beyond that, it requires recognition that although commercial activity will always be less important than the safe running of the transport network, it is not “secondary” and requires different people, funding, support arrangements and governance from the core transport activity.
The key realisation in developing our commercial strategy was that we are a property company. Property will never be the most important thing we do, not when there are 30 million journeys on our network every day. However, TfL has 2,280ha of land all over London and over 400 potential development sites, so it is a property company whether it likes it or not, and a large one at that.
Of the 400 sites, we expect to develop 75 in the next ten years, the majority through a series of joint ventures. This activity has the potential to make TfL London’s largest property developer. The first joint venture we signed was in 2014 when we entered into a partnership with Capital and Counties to develop the 10.6ha in and around the Earls Court conference centres. This remains our single largest development opportunity.
Earlier this year we launched a procurement process to identify a further range of property partners with whom we would work across a number of other sites. We have seen huge market interest from the UK’s leading property developers, including many organisations which until recently would not have considered working alongside TfL. We have identified some 10 million sq ft of development potential on 50 sites that we are keen to bring forward for development. These sites range from stations and depots to car parks and brownfield locations.
In order to take forward this scale of activity, it will be necessary to increase the existing property development function. The team is expected to grow from five to 29, and we are seeking a property development director to lead the enlarged team. The new team members will sit on the joint venture boards and will be responsible for identifying new development sites, working closely with operational colleagues to identify and unlock issues that may prevent development.
This is not only a question, however, of long-term development. TfL owns 1,000 retail units across London, mostly in and around stations. Many of these were of poor quality in comparison with the retail sites immediately outside our stations. Historically, TfL did not have a strategic approach to retailing and had not built relationships with major retailers.
Activities now under way include: Click and collect - in just over a year click and collect has been introduced at 43 stations to allow passengers topick up online purchases from retailers such as Amazon, Argos, InPost, Ocado, Sainsbury’s and Waitrose. Twenty further sites are planned.
Pop-up retail was introduced initially at Old Street Station, where we have seen over 100 pop-up retailers since the launch in April 2014, from brand new start-ups to established retailers such as French Connection, Moleskine and Jamie Oliver on our network for the first time. We have since extended the concept to other stations such as Piccadilly Circus.
We have been identifying and creating new retail space at locations such as Canary Wharf, where we have consolidated public toilets and back-of-house space to create retail units. In February this year we opened units from Neal’s Yard, Paperchase, Supernatural Juices, Notes Coffee and WH Smith.
We have developed a kiosk that meets all our fire and other standards, and which should make future deployment on our network much more straightforward. The first newstyle kiosk was delivered to Waterloo and is occupied by Scribbler. Other kiosks are planned for King’s Cross, Westminster and North Greenwich.
We are working with existing independent tenants, assisting them with shop fit-out and their merchandising mix to improve both their service and sales. This activity is being carried out with the active support of the National Federation of Retail Newsagents.
With 4.5 million journeys each day on the London Underground network, there are huge opportunities for us to provide our customers with the products and services they need every day. We can blend high street and independent retailers. We can make sure our retailing reflects the people who use our stations and the different parts of London in which our stations are located. London is a myriad different cities, towns and villages – and our stations and the retailing within them should acknowledge that.
We are also building on our successful sponsorship partnerships with Barclays, Santander, Emirates, Virgin Media, ESPN FC and notonthehighstreet.com. These sponsorships have not only generated valuable revenue for us to reinvest in the network, but have also enabled us to introduce new transport infrastructure such as the cycle hire scheme and wifi on the Underground.
With income to TfL of £6.25m a year for seven years, and Santander committing itself to spending a further £1m on marketing annually to promote the scheme, the Cycle Hire contract is the most valuable public sector sponsorship in the world and the highest non-sports sponsorship in Europe. More importantly, it’s a great example of two organisations coming together to innovate and improve customer service, building on the skills and assets of both partners.
With London’s population expected to rise from 8.6 million today to 10 million by 2030, we need to make sure that we have the transport infrastructure in place to cope with the expected demand. The range and value of commercial development activity being undertaken continues to grow, and I have found myself in one of the most interesting jobs in London, because we have assets that will be around for decades, if not centuries, in the greatest city in the world.
My role is to utilise those assets to generate essential commercial revenue which will support the transport system to help London remain a world-leading city and the driver of the UK economy.
Reference: Transport Times, May 2015 Issue
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