Room for a Small ‘Un..?

The £1.5 billion sale of over 4,500 Network Rail arches raises questions over the survival of the multitude of small business that are based in them

Dear Reader,

Though first touted at the end of 2017, the sale of over 4,500 railway arches by Network Rail to Blackstone and Telereal Trillium Ltd that was finalised and publicised in early September, has meant concerns over the long-term survival of many craft and creative SMEs have not gone away. Aware of the political and economic sensitivity of this issue, the investment duo published a joint open letter committing to a “tenants first charter.”

This alone has certainly not been enough to calm fears; some tenants claimed Network Rail had begun to raise rents and bear down on long term inhabitants of the arches up to two years ago as the infrastructure manager began preparing the portfolio for the market. The clear concern is it will only get worse.

Despite the open letter pledging to listen and engage, SMEs may not find solace in the reputation Blackstone has as “buy, fix, sell” merchant, senior executives at the US based private equity group have gone to the press on numerous occasions bridling at the perception they are in the business of short-term financial engineering, smoke and mirrors. Adam Dakin, managing director at its partner Telereal has maintained in the press the investors are thinking in the long term, working to a 150-year timescale and chairman Graham Edwards has also gone on record to say they will be investing heavily in the portfolio for many years. Nine hundred of the arches sold are in poor condition and are currently vacant so there is clearly some scope for fresh eyes and fresh cash.

As an article in the Independent points out, the railways arches have been a wonderful anomaly, a small survivor of publicly owned commercial space in an otherwise increasingly brutal – and short-termist – private sector. As well as being affordable, the paper points to the open and adaptable spaces in the arches, very useful for both growing business who can expand into mezzanines or next door and the fact they can house “dirty creatives” – the dusty, oily or noisy businesses.

The aspiration to engage and consult by the new owners is laudable but until more detail comes out about what plans Blackstone and Telereal have for the arches, the language can be viewed as sufficiently nebulous to give the new owners much leeway. Even when this detail comes out, it will be interesting to see how defence of the current tenants is worded and what wriggle room is given to the investment duo in the longer term. Rather like in central London where the much lauded (by themselves) Westminster Council plan on “Special Policy Areas” such as Savile Row, Cork and Harley Streets was couched in terms of protecting, “the nature” of these areas rather than the businesses in situ, we can only wait to see what protection is offered to these small businesses against high street imposition and whether a loose sense of protecting a feel of the area or “not too much gentrification but more money” will win out over the coming decade.

However, it is very easy to see this purely in terms of the pressures being bought to bear on firms and the voraciousness of big business. The arches have been sold for the tidy sum of £1.5 billion. As an article in the FT makes clear, Network Rail has been reclassified as a public body and as such cannot borrow money on the private markets and will also reach its debt ceiling in 2019. As we all know given the timetabling chaos, franchise problems and delays in opening the Elizabeth Line, money – any money – is sorely needed to get London the rail infrastructure it needs. Much has been written – especially given the economic uncertainty and events such as John Lewis’ 99 per cent collapse in profits – about the carnage facing the high street, even in London. If investment for public transport remains elusive, the public’s distaste for braving the system and heading to those shops will remain stuck in an ever downwards spiral and e-commerce will sweep all before it. No bricks and mortar businesses anywhere will then win.

Many commentators point to the remorseless spread of high street brands into these havens of SMEs, just like the gentrification of Soho and Shoreditch raised these questions through the 1990s and 2000s. Yet one only has to look at the crisis facing the high street and the once great firms now falling like flies to wonder if they do move into these arches is it really voracious growth and corporate blandness or realistic downsizing as they can no longer survive in a high street they once claimed as their own? The focus comes back once more to the vision and greed of the city’s landlords and the property management firms they employ, short term money and dividends for the lucky or sensible and enlightened long term care of this country’s shopping eco-system?

Many august British craft and heritage brands cling on by a fingernail in central London. They cannot merely rely on the gilded point one per cent to be dropped off by chauffeured car, the mass professional and moderately affluent or HENRYs (High Earners Not Rich Yet) must be able to reach their doors as well otherwise these firms in turn will dwindle away. Transport investment in needed, yet this argument raises ugly questions about who to save – the illustrious and historic firm in Mayfair or the fast growing start up media or long-established local bike repair firm in those arches. It’s a tricky question and unfortunately, whatever happens, there will be inevitable change and blood.

Given the profusion of Brexit and party conference news, this story seems to have been seen and yet not seen. There is no doubt – especially as there remains a suspicion Blackstone’s board strategy emanating from New York is more about getting its share price up than care and attention at the operational end of its business – that this could turn into another painful nail in the coffin for many SMEs. We await Blackstone and Telereal’s detailed plans on how they will maintain and manage the 4,500 arches with trepidation.

Best wishes,

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