Serious blow for flagship Borders innovation park

by LESTER CROSS

A revised Business Case is being drafted for the £29 million Central Borders Innovation Park - expected to produce 380 well-paid jobs and boost the local economy to the tune of £350 million - in the wake of a post-Covid slump in demand for office space.

The initial phase of the project which is being promoted by Scottish Borders Council close to Tweedbank railway station has involved construction of offices for CGI, the local authority's IT providers, and for the so-called Inspire Academy, also a council-funded venture.

According to the original business plan, approved by councillors only four years ago, the various phases of the park scheme were set to deliver 11,469 square metres of office space coupled with 3,350 square metres of industrial units. It meant more than 77 per cent of the new buildings would be occupied by offices.

But a meeting of SBC's Executive will be told next week in a report prepared by economic development officer Stuart Kinross of a new factor threatening to blow the project off course.

Mr Kinross writes: "The Borders Innovation Park at Tweedbank is a £29m capital programme, which includes a contribution of £15m from the City Region Deal, £5m from Scottish Borders Council, and £9m from other partners. 

"A Full Business Case was approved by Council in January 2019 prior to being approved by the City Region Deal Joint Committee in March 2019. This business case envisaged a build-out of office and industrial space over three phases. The first building on the site, which is an office for the Council’s IT provider, CGI, and an Inspire learning hub opened in 2022. 

"However, with the Covid-19 pandemic, the anticipated demand for office space has been greatly reduced and there is therefore a need to re-configure the proposed programme. This will require the drafting of a revised Full Business Case, which is currently expected to be presented to Council in November 2023 prior to being considered for approval by the Joint Committee in December 2023."

Financial statistics for the venture include the following: Cost to date £7.526 million – funding £4.398m (external) and £3.128m (council). Total cost by 2032/33 £22.068m – external £17.065m and council £5.021m.

Justification for the innovation park was outlined in the original business case presented to Edinburgh and South East of Scotland City Region Deal by SBC. The document sought approval of £15 million of funding under the authority of the city deal approved by the Prime Minister and First Minister of Scotland in July 2018.

It was claimed the project had a positive economic impact with an estimated Benefit-Cost ratio (BCR) of £16:£1.

The strategic case put forward by the Borders council stated: "There is a strong rationale for major investment to be expended on a Central Borders Innovation Park at Tweedbank. It will provide a wide range of benefits to the Scottish Borders within the context of the wider Edinburgh and South East Scotland City Region as it: · Complies with all key national, regional, and local strategic plans. · Will boost employment by creating 383 jobs excluding construction. · Is anticipated to increase GVA by £350 million excluding construction. · Will contribute to inclusive growth by creating high-quality employment opportunities. · Will encourage innovation through the development of high quality infrastructure that will enable businesses to grow. · Will encourage new employers and employees into the area, bringing new skills and experience." 

In a section of the Business Case headed The Case for Change, it was claimed the depressed state of the office and industrial property market in the Scottish Borders required the level of public sector investment planned under this programme. 

Such investment would supplement the £350 million spent on the Borders Railway. It would overhaul the current reliance on low value, obsolescent stock with high quality premises that would allow for a more competitive business location. Demand analysis suggested there was potential to fill the space proposed. It seems that demand may no longer be present.

The council's report added: "As with many other rural economies, the Scottish Borders has to overcome the problem of market failure caused by a combination of remote locations and poor infrastructure, a lack of supply of modern business premises and the increasing obsolescence of existing stock. Public sector intervention is needed to address this issue, which is crucial to ensuring that sustainable, inclusive economic growth can take place. 

"The coming of the Borders Railway has presented a once-in-a-generation opportunity to enable the local economy to grow. A Central Borders Innovation Park, situated next to the Borders Railway terminus at Tweedbank, would meet the urgent need for high-quality business space in the central Scottish Borders. It would stimulate business growth and associated job creation, enhancing the area’s inward investment offer, particularly to high-value, innovative sectors, as well as meeting the needs of indigenous businesses thereby improving their competitiveness. 

"It would also help to address inequalities in the area by providing access to better quality, higher paid jobs. This Full Business Case [FBC] seeks approval to invest £27,750,000, including £15,000,000 of City Region Deal funding, to develop five plots in the vicinity of Tweedbank Railway Station across three programme phases. A further £1,270,000 will be spent on creating infrastructure to improve access to these plots.". 

The FBC also claimed Scottish Enterprise was confident its business centre/co-working space would assist in helping to kick-start the wider generation of Tweedbank and also in creating a gateway to the Scottish Borders and an office hub that would compete with the out-of-town/satellite offices on Edinburgh’s periphery.

So far as economic impacts were concerned: "The programme will have a large beneficial impact on local and regional employment and productivity. Meeting the objectives of increasing employment, particularly that which is highly skilled and well-paid, and increasing productivity, would have a direct and an indirect impact on the local economy through increased household income and demand for local services." 

The debt requirement for the innovation park was also revealed in the 2019 FBC. Financial modelling estimated the amount of borrowing required to cover outstanding deficits at the end of each financial year. 

The council's overall borrowing requirement would peak at £12.3 million in Year 6 (2023- 24) with repayment taking place in Year 15 (2032-33). The cumulative operating costs (capital and revenue)  showed the project, as originally conceived, would generate an overall surplus of £11.1 million by Year 30 (2047-48). 

"Scottish Borders Council can currently borrow at a rate of between 2.75 per cent and 3 per cent. For reasons of prudence, a borrowing rate of 3 per cent has been used in the modelling."

However, the cost of borrowing climate has changed dramatically in recent months. Interest rates on loans approved in March 2023 by The Treasury's Public Works Loans Board - the main source of debt funding for public bodies, including local authorities - ranged from 3.9% to 5% with the vast majority of transactions having rates in excess of 4.2%.