CITY OF HOBART ACTED TO SAVE CBD JOBS AND RATES
When faced with business closures, empty stores and slashed rates the City of Hobart acted decisively to secure the long term economic future of Hobart’s Central Business District.
In response to media and community interest the Council of the City of Hobart makes the following information available to the public as part of its 2014 Annual Report ( Available here ).
In making the disclosures in its Annual Report, following review and sign off by the Auditor General Mr. Mike Blake, the Council is fulfilling its legal responsibilities to make full
disclosure.
History
“When fire destroyed the Myer Liverpool Street site, the Council took a strong leadership role to ensure that the catastrophic consequences of this disaster would not result in the demise of the City and CBD.“
“Immediately following the fire, the Council recognised that this event would have a significant impact on traders and that decisive action was required to prevent adverse impacts on the City’s retail and property sector.”
“History has shown that the actions taken by the Council, to avert the threat to CBD traders, has been for the betterment of the City, its traders and shoppers.”
“It was the Council’s duty to act when faced with the dilemma whether to provide assistance to ensure the long term survival of the retail heart of Hobart. The Council could not idly stand by and simply contemplate what affect the fire at Myer’s Liverpool Street site could have on Southern Tasmania’s primary retail centre.”
“Preventing the potential devastation of the retail heart of the City was uppermost in the Council’s mind throughout its deliberations on this matter,” the Lord Mayor, Alderman
Damon Thomas said.
Process in 2010 and 2011
Always central to the Council’s decision-making process was the need to follow strictly the concepts of probity and integrity. Always mindful that the Council is required to act in the best interests of its community, prior to making any decisions a thorough due diligence was undertaken, involving input from probity auditors, financial advisors, legal counsel, Council’s internal auditors and the Auditor- General.
Since a strong economic needs case needed to be made out for assistance the Council commissioned nationally renowned firm SGS Economics and Planning in April 2010 to undertake an economic analysis of the loss of Myer.
The report prepared by SGS Economics highlighted that if Myer were to leave the City SGS suggested that due to its size, Myer has the ability to affect more than a handful of businesses by the decisions it makes. In other words what Myer does will have an impact on the broader CBD.
1. The retail sector would be affected markedly with expected retail turnover in Hobart Inner dropping from $288M in 2010 to $252M in 2016 or a drop of approximately 12%.
2. Furthermore, the SGS Economics report indicated that if Myer were to leave the City, the retail sector in Hobart Inner would be structurally affected with total retail turnover in 2026 not yet recovered to 2010 levels.
3. Conversely, if Myer were to stay in the City and the proposed development be completed total retail turnover would grow to $334 million, representing an increase of 16%.
The net impacts of Myer leaving the City compared to Myer remaining in the City as part of the proposed development by Kalis Properties was reported as more substantial.
If Myer left the City,
1. Hobart would miss out on $82M in retail turnover as early as 2016. Of this, $39M would be the direct impact generated by Myer’s operations.
2. The flow-on effects to other retailers in Hobart Inner would be $43M in retail turnover; this would expectedly represent about 500 retail jobs.
3. The net effect on rent levels and rates received by Council in the event Myer left the city would see Hobart denied of around $11 million in rents (assumed to be equal to AAV) with a flow on effect in terms of AAV at a staggering $8.3 million.
4. SGS suggested that if retail sales are down for all businesses across the CBD (as opposed to a handful) than this affects their ability to pay the ‘going rent’. Therefore shops either close down or renegotiate a rent based on the new market conditions.
SGS suggest that as AAV has a strong link to rent – AAV is the notional net rent achievable for a building in a given year (less outgoings like land tax and GST). Therefore if rents go down (or up) AAV will follow through the revaluation mechanism.
Assuming the rates level (as rate in the dollar) remains stable, the Council would miss out on nearly $1 million in rates received retail in prime CBD which is an ongoing impact. At the time AAV for the core block of Murray, Collins, the Mall and Liverpool Streets was $23M with a rates income to the Council of $1.95M per annum.
If Myer left the City then the AAV would fall to $21M and rates income to $1.78M per annum by 2016. Conversely, if Myer were to stay in the redeveloped site, AAV would be $32M and rates income would be $2.72M per annum for the core block by 2016.
This would result in a net position between Myer leaving the City and Myer in a redeveloped format of $11M in AAV and $934,000 in rates per annum collected in 2016.
“The Council could not, and would not stand by and ignore the impact of those sorts of numbers.”
“In reaching its decision the Council required and received detailed reports as to the probity of its decision making process as well as the commerciality of the deal between E Kalis Properties Pty. Ltd. and Myer Pty. Ltd. and as to what the case was, for Council assistance.”
“In fact the Council took 12 months to finalise its decision while this advice was considered and extensively analyzed – the Council initially made its decision in late 2010 but subject to a full due diligence, which was then undertaken over the following year.”
“We believed, and the expert advice confirmed, that it was absolutely essential for the future of the City to invest in having a major national retailer in the CBD and in facilitating the redevelopment of the Myer store.”
“Furthermore, an increased AAV would mean that the burden of rates on individual rate payers lessens as the collective value of the City is more.”
“This is the reason why the Council entered into conditional agreements with both the developer of the Myer site, E Kalis Properties and national retailer Myer.”
Assistance
On the following basis –
1. The clear understanding that the requirements of sections 21 (Enterprise Powers) and 55 (Pecuniary Interest) of the Local Government Act 1993 have been satisfied, that legal advice has been obtained and followed and that all probity considerations have been observed by the Council, and
2. In furtherance of the general benefit to the City of Hobart and in particular the sustainability of the Central Business District (including employment, growth and improved AAV).
The City of Hobart has offered the following grants and benefits to assist with the Myer redevelopment in both Liverpool and Murray Street:
1. Kalis Properties have been offered a cap on rates for a defined period based on the value of the property as at 18 January 2012, limited to increases in line with CPI, together with the waiving of fees and charges associated with the construction.
These arrangements are consistent with the Council’s published Major Developments Assistance Policy. Council was prepared to give up a proportion of rates on the Myer development annually in order to achieve an increased AAV on all properties into the future which in turn would benefit the wider city.
2 Furthermore, the City of Hobart has also undertaken a conditional agreement with national retailer Myer Pty Ltd. This agreement involves an economic development grant of $3.5 million for fit out and establishment costs for the retail store in Liverpool and Murray Streets. The agreement is conditional upon Myer commencing trading from the new development.”
3 However, the potential exists for subsequent economic development grants to the total of a further $3.5 million over two trading years should Myer’s annual turnover in the Liverpool and Murray Street store fail to meet certain thresholds.”
Outcomes
“Today there is significant building activity on Myer’s Liverpool Street site, confidence is up and spending in CBD shops is buoyant – all signs that the Council’s commitment and involvement in this issue has been justified. “
“The Council acted in an appropriate and prompt manner to help restore confidence and sustainability to the City and the CBD. The Council is totally justified for acting and makes no apology for acting decisively in its community’s best interest”, the Lord Mayor said “and all decisions by the Council were underpinned by the fullest reflection of professional advice, probity and integrity.”
