Off the rails

Chris Hill has learned a few things while running a business in a railway arch.

“Over the decade we’ve been here, I’ve realised having a make do and mend approach makes more sense than pestering the landlord, Network Rail,” he says.

Guardians of the Arches hopes the new landlord will fulfil promises to put tenants first

“Around 60 trains a day travel over this arch. Rain falls on the track above and, as a result, we have water coming in through every brick. But it took three years of nagging before they put in any extra drainage – and even then they didn’t do it right. However, the space is ideal and if we put up with the problems, they don’t bother us.”

Hill’s shop Latitude Wine is on Cherry Tree Walk, close to the Corn Exchange, in Leeds city centre. Around half its business is retail and half wholesale, and an arch suits perfectly.

Its physical shortcomings are typical for this kind of space but the upside is that rents and start-up costs are comparatively affordable – making arches ideal for small independent traders.

Hill has built the business from a one-man band to four full-time staff. But uncertainty about the future is holding him back from further expansion. His is one of 5,200 properties being sold by Network Rail to a pair of investors as part of a £1.46 billion deal.

Contracts were exchanged this month and Telereal Trillium and Blackstone Property Partners will soon be the new landlord of 4,555 converted railway arches.

The buyers have pledged to make hundreds more vacant arches available for rent and to create a tenants’ charter – but traders fear rent rises are on the cards.

Responding to the deal, a spokesperson for campaign group Guardians of the Arches vowed to keep up the pressure. “We continue to dispute whether selling off the whole estate in one job lot is the best way of supporting small businesses and the local economies which rely on them.”

The group hopes the new landlord will fulfil promises to put tenants first in their management of the estate.

“A starting point would be to meet our demands for a full, transparent rent and lease audit, and to recognise Guardians of the Arches formally as a tenants’ association.”

Network Rail, which is currently in public ownership, says the sale will release much-needed funds for major infrastructure improvements.

But critics say the move is short-sighted because long-term rental income is being forfeited for short-term gain. The company’s property estate brought in revenue of £304 million last year, turning a profit of £81 million.

Many believe the move was foisted onto the company by the Treasury as a way of bringing down its debt, after it was brought back into the public finances in 2014.

Research by the New Economics Foundation (NEF) thinktank suggests businesses based in the railway arches contribute over £725 million to the UK economy every year – with each business in an arch contributing an annual average of over £160,000 to GDP.

Not all railway arches were included in the sale. About 1,800 were exempted because they are either needed to run the railways or are part of Manchester’s Northern Gateway regeneration plan. Scottish arches are also not part of the sale.

Historically home to light industry such as garages and car breakers, today’s arches boast a dynamic mix of independent shops, bars, hairdressers, craft breweries and gyms. Arch businesses in Leeds include the likes of Bop DJ, which supplies DJ equipment. In Manchester, businesses range from a bike repair shop and café in the Green Quarter, to Base Mcr, where you can drink beer while practicing your baseball swing.

Many fear the new landlord will seek to cash in on its investment by pushing rents up – particularly in up-and-coming areas. They point to recent huge increases in London, where long-established businesses have been forced out of their arches or even driven close to bankruptcy.

In one case, a Clapham garage that had operated out of the same premises for 60 years faced a rent hike from £33,000 to £147,000 per year. Network Rail later relented, but almost doubled it instead.

Frustrated by their powerlessness and the lack of communication from Network Rail over the sale plans – as well as the absence of publicly-accessible information about the bids – a group of tenants formed Guardians of the Arches earlier this year, with membership swelling to almost 400.

The group took to the media and lobbied politicians in the hope of influencing the sale – with adverse publicity thought to have contributed to one bidder pulling out. They hope to represent traders’ interests once the sale has gone through.

Katie Cullen, who co-founded Block and Bottle butcher and craft beer shop last year within a disused arch in Gateshead, travelled to London to raise the group’s concerns in parliament.

She says: “It’s so important to have made this connection with other tenants. I no longer feel alone now because I know others running similar businesses, who are going through the same thing.

“I know any rent hikes will affect London first but I believe the new landlord will then turn to the north. They will look for trendy areas and put the rent up, and there have been lots of new and exciting things happening around here – our business included.”

Will Brett of NEF, which is supporting the Guardians campaign, believes there is power in the tenants being organised and hopes the new owner will engage with them.

He adds: “The communication regarding this process has been woeful – tenants received a single letter telling them it is happening and I’m sure some are still unaware of it. We weren’t allowed to see the information presented to bidders by Network Rail, which I think was keeping tenants in the dark.

“It’s not that anybody thought Network Rail was a good landlord – members are certainly open to other ways of managing the estate. But the idea of having one unaccountable commercial landlord bothers Guardian members.”

In cities outside the capital, where rent hikes have so far been less evident, many affected businesses are operating on precarious rolling leases – leaving them now feeling extremely vulnerable.

Dr Brian Rosa, of the City University of New York, is turning his doctoral study of Manchester’s railway arches into a book. He found numerous businesses, particularly in the Angel Meadow area of the city – which falls into the Northern Gateway masterplan – operating on three-month rolling leases that offer little security.

“For a lot of the newer businesses I talked to, this is all they’ve been offered,” he says. “So they’ve had to fit out the spaces, potentially investing a lot of money but not knowing if their lease is going to be renewed or under what terms. Even some long-standing businesses are in a similar situation.

“One, a gym, was originally on a more typical six-year lease but was moved to a three-month rolling lease when that expired. It all feels very precarious for these traders.”

Rosa says displacement of arch tenants has happened in waves since the 1980s, with the traditional businesses gradually giving way to more diverse uses. In Manchester – where Network Rail owns over 350 properties covering 1.3 million square feet – early examples of this trend include the now-defunct Green Room on Whitworth Street West and Atlas Bar along with Deansgate Locks.

“The track operators have always been what I call reluctant rentiers,” he says. “They own the railway infrastructure and so also had responsibility for the land beneath the viaducts. At a few points, British Rail – later replaced by Network Rail – tried to refurbish and promote their commercial properties, but that has always been at the behest of government.

“At times it has tried to capitalise on its assets by raising rents where neighbourhoods have become sought-after areas, as we’ve seen in London. Yet in other places, such as Angel Meadow, Network Rail didn’t even bother to let all the arches, despite there apparently being demand.”

The new landlord is buying a 150-year leasehold to the property portfolio. The freehold to the arches will stay with Network Rail, which requires access for maintenance of the railway. But having to navigate an additional level of bureaucracy is a concern for tenants, who found it hard enough to deal with one.

In Leeds, Hill’s six-year tenancy ended without renewal and he could now be given six months notice to leave.

He says: “I’m not threatened with eviction next week but I don’t want any nasty surprises either. I’m not feeling very reassured. There is a commercial property bubble going on in Leeds, and I do think the new landlord will want to come in and maximise its assets.

“There are only certain promises that can be made at this point because there are contrasting interests – mine to remain and employ people and contribute to the local economy and a big international company with shareholders. This has laid the fragility of our tenancy situation completely bare – they can do what they want.”

David Biggs, managing director of Network Rail Property, says: “We are proud to have fostered so many small, independent, diverse businesses and communities across the country and we are confident that these will continue to thrive under the new owners.

“Ultimately our role is to run, improve and grow the railway, and managing these properties isn’t essential to that. The new owners will invest in and grow the estate, and we can focus on our core business of running the railway.”

Graham Edwards, co-founder and chairman of Telereal, which will oversee the day-to-day management of the portfolio, says: “The arches portfolio is a unique and vital part of the UK economy. We are tremendously excited by the prospect of working with its entrepreneurial tenant base, made up of car mechanics, bakeries, micro-breweries, restaurants, and just about every type of business you can think of. These tenants are a vibrant part of many local economies and communities.

“We believe that the long-term success of this portfolio rests on strong relationships with our tenants, as well as with local communities and local government.”

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The wow factor

A run of arches close to Manchester city centre could form part of a brewery quarter after being taken out of the Network Rail sale.

Properties in the Red Bank viaduct, not far from Victoria Station, may instead be sold to the Far East Consortium – the developer behind the council’s Northern Way regeneration scheme.

Traders already operating from Red Bank include the city’s first legal gin distillery and craft brewers Beatnikz Republic. Several other micro-breweries are based nearby.

Dave Rigby, who launched Three Rivers Gin with three friends in 2016, says: “This was an empty shell when we got it so we put in a lot of work. We built a factory floor and mezzanine. It doesn’t look like much from the outside but when you go inside it has the wow factor.”

It was only after co-founder Louise Rivers-Hull became active with Guardians of the Arches that they discovered Red Bank was part of a separate deal.

He says: “The communication has been terrible, and no one really knows what’s going on. Now the council is doing a consultation about the regeneration scheme there is more out there. If we can be part of that regeneration rather than gentrification that’s great – but will the buyer want to put our rents up?”

Tom Fenton, Northern Gateway project director at Far East Consortium, says Manchester City Council has long been in discussions with Network Rail about acquiring the section of arches – a conversation Far East Consortium is now part of.

He says: “There is potential to put an elevated walkway above the arches, along the lines of the New York’s High Line, and some residential development on associated land.

“These discussions are at a fairly advanced stage and hopefully we are not far from agreeing terms. We hope to encourage the businesses to stay there and to develop a small brewery quarter, so retention and support of traders will be important if we become landlord.”

Main photo: Chris Hill outside his wine shop in Leeds city centre (Claire Griffiths)