Hands up who thought there would be another round of UK enterprise zones?

I for one, would not have foretold this. Given the mixed track record of the 2011 crop of Enterprise Zones, which is hardly surprising given the muted market conditions for industrial and commercial land and property in most of the UK, I wouldn’t have thought that this initiative would be repeated in almost exactly the same form.
But its now with us again – government are inviting submissions at very short notice – by September. And its perhaps a bit more interesting, with submissions from smaller cities and towns and rural areas being mentioned in the guidance.
In this article I pull out a few issues and lessons to take on board when making your 2015 Enterprise Zone submission.

Summary – the main lessons to take on board

• viable sites – with the infrastructure (or investment in place), market demand and services
• good proposition and strategy as a business location
• additional incentives on offer
• aimed at SMEs (the incentives are perhaps too low for major FDI projects, unless an assisted area with capital allowances)

So what did we learn from last time?…

INTRODUCTION

HM Government established twenty two Enterprise Zones in Local Enterprise Partnership areas  in 2011-12. The Enterprise Zone policy sought to encourage the physical and economic regeneration of relatively small areas of around 50-150 hectares. Enterprise Zone sites benefit from:

• A business rate discount worth up to £275,000 per business over a five year period;
• Government help to develop simplified planning approaches for zone sites building on existing Development Order powers;
• All business rates growth within the zone for a period of at least twenty five years will be retained by the local area to support the Local Enterprise Partnership’s economic priorities;
• Government support to ensure that high speed broadband is available to companies on zone site.

LESSONS

Variety: There was an incredible variety of approaches, which included:

• Both greenfield sites and brownfield sites
• Consolidated sites, and fragmented multi-site enterprise zones
• Sites with existing development / spec build; and undeveloped sites
• Sites with existing infrastructural access / sites with no access
• Zones with a coherent industry focus (e.g. low carbon, aerospace)

Market environment: The 2011 Enterprise Zone initiative was launched at a time when the commercial and industrial real estate market and industry was in a significant downturn. This meant that:

• There was little appetite for speculative build – particularly on unproven sites with viability issues and with a lack of infrastructural access
• Difficult to raise investment finance for real estate – banks and financial institutions were deleveraging their exposure to property investments – meant a lack of investment funds

Business demand for premises: One of the issues that has been perhaps misunderstood is the likelihood of business investment in ‘self-build’ sites and premises. The experience of Enterprise Zones has taught us that most businesses (particularly SMEs) are not prepared to build their own custom premises or site – they prefer to move into existing buildings.
In addition, the nature of inward investment has changed. Foreign Owned Companies can and do build large scale premises, but less so than in the past, and they prefer an initial ‘soft landing’ to establish operations and search for the right site and premises.
An incentive that is more attractive to small businesses: The incentive – a potential saving of £275,000 per business – is more attractive to small businesses than for large corporations. For large foreign owned companies – this was never going to be a game-changing incentive. Plus in many cases, there was a lack of other incentives or support as part of the EZ package. What we tend to see is that FDI investments have also had support from the Regional Growth Fund or Capital Allowances from BIS.
Government support framework: It was also launched at a time when the UK government froze major capital expenditure, and when the assisted areas map revisions meant that there were only a few Enterprise Zones that had capital allowances. Although the cap on government capital expenditure turned out to be temporary, it caused the market to be particularly averse to investing in sites with significant infrastructural investment requirements.
In the first few years there was significant government concern that Enterprise Zones were making insufficient progress. This is perhaps unsurprising given the narrow set of policy tools and the unfavourable market environment. They released funds to help with infrastructural access and site viability.

WHAT HAVE BEEN THE SUCCESS FACTORS?

The most successful Enterprise Zones had the following features:
Good site viability: presence of all or most of the following –

• Serviced site (i.e. utilities and road access)
• No remediation required
• Good road and transport access
• In area of high demand for commercial/industrial premises

Existing stock of premises already on EZ. In several EZs in the north of England, there were premises that were part-funded by ERDF and RDA monies which were nearing completion as the EZs were announced. Businesses are more attracted to premises than empty sites, so they were quickly occupied in some cases.
Attractiveness of site in terms of quality business location – i.e. does it look like a modern business/industrial site?
Proximity to major industry sites / clusters – e.g. where there are opportunities to capture supply chain activities
Other incentives were available. A few EZs retained capital allowances for a few years. Some LEPs and local authorities forward funded infrastructure access and could forward fund site servicing and access if a developer / occupier was found.

What would help strengthen your case?

Ensure the proposed sites have good viability and can proceed quickly. i.e. there will not be significant delays in getting investments and jobs on-site. It is unlikely the HM Government will back sites that will not be deliver substantial benefits in the next 5 years, given the track record and dissatisfaction with the 2011 round of EZ designations.
Have the land owners and private sector on board at the start, with investment commitments on the table. This would help prove the case in terms of levering in private investment more quickly than would otherwise have happened.
Offer additional incentives. It would help to make a better case to have an ‘industry’ or area based package of incentives on offer in addition to the EZ business rates discounts.
Make a coherent and attractive case for providing a top class business location. Many of the struggling EZs in the past were not proposed in these terms, and were not progressed on this basis.
Ensure the transport and infrastructure is either in place or can be delivered in the next 2-3 years. Some EZs have only just completed their road/infrastructure access. Many remain unserviced. These are the ones that have low levels of occupation. Again, it’s another advantage for shortlisting to have the infrastructure and services in place, or in train.