Queen Victoria Market: The value of public retail markets. Andrew McDougall, Principal & Partner

Transcription

1 Queen Victoria Market: The value of public retail markets Andrew McDougall, Principal & Partner

2 Outline 1. What makes a compelling business case for public funding? 2. What forms of economic analysis support public funding of public retail markets? How is value generated? 3. Illustration through the QVM renewal case study 2

3 What makes a compelling business case for public funding? 1. Clear investment logic 2. Strong evidence supporting the need for investment 3. Alternative investment options that respond to investment logic 4. Rigorous evaluation of alternative investment options 5. Detailed delivery plans for the preferred option 3

4 What makes a compelling business case for public funding? 1. Clear investment logic 2. Strong evidence supporting the need for investment 3. Alternative investment options that respond to investment logic 4. Rigorous evaluation of alternative investment options 5. Detailed delivery plans for the preferred option 4

5 Clear investment logic Problem Benefit QVM s constrained offer cannot adapt to meet evolving consumer expectations Improved visitor value Summary of evidence: In order for the QVM to remain competitive in today s retail landscape, its offer must be suitable and attractive to an increasingly time-poor and discerning consumer base that has access to a wide range of retail options. While the QVM is a major resident and visitor attraction in Melbourne, at present it fails to cater to the convenience and leisure oriented retail markets, does not provide a high amenity environment, and has a number of accessibility concerns, all of which compromise the visitor experience. 5

6 Clear investment logic Problem Benefit Underperforming public assets at QVM hamper CBD North s liveability Improved CBD North liveability Summary of evidence: With a current deficiency in public space and community services in the northern precinct of the central city, as well as a significant level of population growth expected in the area in coming years, the continued underutilisation of the QVM site is likely to stifle liveability in the area for current and future generations. 6

7 Clear investment logic Problem Benefit Inadequate facilities compromise QVM s security, safety and compliance Improved precinct security, safety & compliance Summary of evidence: Inappropriate and inadequate infrastructure is raising concerns about the safety and security of the QVM precinct, both in terms of vehicle and forklift access and operation, and appropriate food handling and storage practices. 7

8 Clear investment logic Problem Benefit Outdated operating modes undermine QVM s sustainability Improved business (operator & tenant) viability Summary of evidence: The QVM s spatial inefficiencies and inadequate infrastructure compromise efforts to optimise the productivity of the market and its surrounds, while also contributing to the issues of retail competitiveness and visitor attractiveness described in Problem 1. 8

9 Benefits align with Council s priorities Improved visitor value Improved CBD North liveability Improved precinct security, safety & compliance Improved business viability Community & organisational policies Future Melbourne CoM Council Plan CoM Municipal Strategic Statement CoM Municipal Public Health & Wellbeing Plan Place based policies The QVM Long Term Strategy The City North Structure Plan QVM Precinct Renewal Strategic Brief QVM Precinct Renewal Master Plan Specific initiative policies Open Space Strategy Heritage Strategy Last Kilometre Freight Plan Zero Net Emissions Strategy 9

10 ('000) Cost of doing nothing? $25,000 $20,000 $15,000 14% 12% 10% 8% $10,000 $5,000 $- Total revenue Total profit Profits as a % of revenue (RHS) 6% 4% 2% 0% Year 10

11 QVM Renewal options 1. Business as usual (do minimum) 2. Limited below ground (compromise solution) 3. Below ground (QVMPR program) 11

12 QVM Renewal options Option 1 Option 2 Option 3 Total floorspace (m2) 46,310 68,193 85,867 Net lettable floorspace (m2) 24,531 25,661 29,940 Lettable trader back of house (m2) 1,915 3,015 6,215 Capital costs ($ million) Negligible * * 2022/23 annual rents/ fees $ (million) *excludes approx. $70m in land sale proceeds, which offset costs. 12

13 Economic analyses that inform public business cases 1. Financial analysis do the financial revenues outweigh the financial costs for the investor/s? 2. Cost benefit analysis do the economic, social & environmental benefits outweigh the costs for the community? 3. Economic impact analysis how much economic activity does the project generate in the regional economy? 13

14 What items form the financial analysis? Item Description Capital costs Costs of implementing the capital works program. Operating revenues Operating cost savings Residual value Interest payments Proceeds of land sales Redevelopment will allow the market to function more efficiently and effectively, leading to increased revenue generation. By reconfiguring and the market and investing in new assets, maintenance and operating costs will be reduced. The capitalised value of the renewed market is assumed to depreciate on a straight line basis. After 30 yrs the written down value is the residual value. Financing charges assuming the project is funded by debt over the course of its life. Reduce the project s initial capital costs, as they are windfalls provided by the State. 14

15 Operating profitability estimates 15

16 Financial analysis: incremental Option 1 - Business as usual has a NPV of ($103 M) Option 2 and 3 are compared to this base case. That is, their results are incremental ; they measure the impact of Council taking proactive action. 16

17 Financial analysis incremental results 17

18 Incremental financial flows (net revenues) 800,000,000 Option 2 Option 3 600,000, ,000, ,000, ,000, ,000,000 18

19 What items form the cost benefit analysis? Benefit Description Financial costs (exc. interest) Financial revenues Existing shopper enhanced experience Induced shopper benefit Tourism yield Productivity enhancements Urban consolidation Included Included Existing local QVM users will benefit as a result of a higher quality facility. An improved QVM will attract a greater number of local shoppers, with each additional shopper enjoying a benefit. Tourism benefits will be reflected in their spending; though only the value-add component of this is counted. Renewal will lead to a greater density of employment in surrounding areas, driving labour productivity improvements. Renewal will accelerate residential development surrounding areas, avoiding infrastructure costs that would have to otherwise greenfield development. 19

20 Cost benefit analysis incremental results Option 2 Present value ($000) Option 3 Present value ($000) TOTAL CAPITAL COSTS $175,141 $254,277 Operating revenues $97,006 $263,859 Operating cost savings $114,908 $114,908 Induced shopper benefit $52,890 $87,217 Existing shopper enhanced experience $244,536 $244,536 Tourism yields $38,993 $43,201 Residual value $26,052 $37,029 TOTAL LOCAL AREA BENEFITS $574,384 $790,750 NET PRESENT VALUE (NPV) $399,244 $536,472 BENEFIT COST RATIO (BCR) ECONOMIC INTERNAL RATE OF RETURN (EIRR) 15.56% 14.44% Productivity benefits $252,352 $415,052 Urban consolidation benefits $117,632 $193,473 TOTAL LOCAL AND WIDER AREA BENEFITS $944,368 $1,399,275 NET PRESENT VALUE (NPV) $769,227 $1,144,997 BENEFIT COST RATIO (BCR) ECONOMIC INTERNAL RATE OF RETURN (EIRR) 20.94% 20.56% 20

21 Annual net benefit flows (incremental) 3,500,000,000 3,000,000,000 2,500,000,000 2,000,000,000 Option 2 Option 3 Option 2 (incl. wider area benefits) Option 3 (incl. wider area benefits) 1,500,000,000 1,000,000, ,000, ,000,000 21

22 What s not valued? 1. Business incubation benefits 2. Environmental benefits 3. Safety & security benefits 4. Broader branding benefits 5. Non-use existence/ option benefits (heritage benefits) 22

23 What items form the economic impact analysis? Benefit Capital costs Tourism spending Operating profitability Description Costs of implementing the capital works program. Tourism spending captured on site. Financial revenues less financial costs. SUM of the above on an annual basis Computable general equilibrium model of Victorian economy Total economic impacts in terms of GSP, jobs, investment, taxation and net exports on an annual basis. 23

24 Gross Regional Product ($m) Option 2 Option

25 Job creation (FTE) Option 2 Option

26 Stocktake 1. What makes a compelling business case for public funding? 2. What forms of economic analysis support public funding of public retail markets? How is value generated? 3. Illustration through the QVM renewal case study 26