The company charged with running UK rail networks dumped £38bn of debt onto the government’s balance sheet last year. This year it’s taking steps to recoup some of that cash from its substantial property portfolio. In total, Network Rail controls around £1bn worth of commercial property assets, including 7,000 properties and around 5,500 arches, which are currently let to a diverse range of SMEs from garages to retailers and nightclubs. In total the portfolio brought in £266m in rent last year, accounting for 10.6% of total revenue.
Nonetheless, The Financial Times reports, Network Rail has commissioned investment bank Rothschild to assess whether the assets should be sold or redeveloped, with potentially serious implications for existing tenants.
The review is part of a new modernization programme being implemented by newly appointed executive chairman Sir Peter Hendy, previously of Transport for London (TfL).
Given TfL’s decision to switch from selling off land to developing property to raise more funds for the regional transport agency, there is a chance that Sir Hendy will look at similar opportunities for Network Rail's assets. A direction favoured by some commentators.
Alexander Jan of engineering group Arup, for example, told the FT that “There’s been potential to use railway land more productively for years and selling it off isn’t necessarily the best option.” In particular, Mr. Jan argues, local authorities should be given the opportunity to develop Network Rail land to boost local tax revenue.
However, Network Rail is hampered by the immediate need for liquidity. The rail operator has already had to halt improvement works after transport secretary Patrick McLoughlin said rising costs and missed deadlines had made the planned works ‘untenable’. And that was before its recent £2m fine for delays and cancellations
Commenting on the appointment of Rothschild, Network Rail said:
“Every penny of the profit we make from our commercial property is reinvested in the railway... Specialist property advisers are being sought to help us make even more use of these assets.”
That will do little to calm small businesses occupying National Rail property. Meanwhile commercial property investors may need to keep their eyes open for opportunities as plans progress.
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