Development Fundamentals

An overview

This article provides a high-level overview of a typical development process and outlines key considerations when managing and delivering a scheme. It includes an explanation of each step of this process, and the main risks involved in real estate development as well as key stakeholder involvement.

What do we mean by development?

Development is the process of bringing together land and resources (people and money) to create new assets, which can support placemaking, economic growth and new communities. There are six key stages to any development process, outlined in Figure 1 below. The length of time each of these will take to be executed and completed will depend on the scale and complexity of a project or programme.

A diagram illustrating the six stages of development — Figure 1 The six different stages of development

Development options

Development options will reflect a combination of physical, planning policy, commercial, financial and deliverability factors considered together, as described below:

Development considerations for an existing site: This refers to how the site is going to be used needs to be reflective of demand, its context and wider constraints including financial viability. Is the scheme being developed as owner occupied, for investment purposes, or for public benefit (e.g., public realm or leisure? The developer needs to carefully assess the needs and preferences of potential occupants or users, as well as the local market demand and all regulatory requirements.
Location for a new development site: When looking to identify a new site for development, consider factors such as accessibility, proximity to amenities, transport links, and wider factors such as demographics. These may all have an influence on both existing value but also the increase in value once the scheme is developed.
Town planning considerations: Is the site is allocated for the relevant planning use class, how well the development aligns to local, regional and national planning policy and are there wider considerations or restrictions (e.g., development of Listed Buildings/heritage assets)? It is also important to consider any potential changes to zoning or planning regulations that could affect the site in the future.
Site characteristics: Factors such as the site’s size, accessibility, shape, topography, and ground conditions all need to be carefully assessed to inform development options. This also includes the location/proximity of infrastructure and services, along with environmental considerations which need to accommodate any new development. These factors may have technical, financial and timing implications for the proposed development, and may in some instances render the scheme unviable.

Design, town planning and procurement

It is important to invest time and resources to optimise design, town planning, and procurement, while also incorporating sustainability measures to ensure that the building aligns with ESG (Environmental, Social, and Governance) objectives. Failure to do this may have serious cost and timing implications later on. Key considerations are described below:

Design: Design options will often take account of several, sometimes competing, factors such as functionality, appearance, sustainability, and cost-effectiveness. It will also be developed to fit within the site’s context and constraints, and the intended use of the development. Design also needs to be developed in line with local planning policy so that the application has the greatest chance of success. Given that local councils may have diverse sustainability objectives, it is essential to be mindful of considerations such as embodied carbon and nutrient neutrality.
Town planning: The planning process is there to provide a framework to guide development in a way that delivers against local, regional and national policy objectives. Early engagement with the local planning authority is always recommended, to provide both time and structure to the end-to-end planning process that may result in a successful application being made and ultimately a suitable planning consent being granted. Depending on the scale of the development, there may be a need for the applicant to provide supporting analysis and evidence to demonstrate the impact of the proposed development (e.g., environment, transport and travel). For more information on town planning, re-watch the Local Growth Knowledge Hub’s Masterclass on Town Planning Strategy in this link.
Procurement: There are often a range of procurement options available, and the most appropriate route (or combination of routes) will depend on various factors; for example, size, complexity and nature of the scheme, risk appetite and the desired level of control over specific development outcomes over and above those needed to meet any planning conditions.

These options sit on a spectrum from direct-development (which brings with it a high degree of control and is fully risk bearing), through to the commissioning of a turn-key project (where the development process is all handed over to a third party to deliver against an agreed cost and programme). Whilst risk is transferred in this scenario, a premium is paid for this approach. Client maturity and resources will also inform the appropriate approach to take. For more resources on procurement, visit our Local Growth Knowledge Hub’s page on Securing & Managing Contractors.

Construction

Construction, the most visible stage of the development process, brings with it significant opportunities and risks, and these need to be considered long before starting on site. Some of these include:

Preparation: Construction is often the stage that brings the largest level of financial and legal commitment, and with it the associated risk that things may not go quite as planned. To mitigate this, it is important for there to be a detailed construction plan that includes timelines, budgets, and resources. This will also include the need for all necessary approvals and consents (e.g., discharging relevant town planning conditions) before a start on site can be made. Early contractor involvement can often prove beneficial, to provide buildability advice, and the early engagement of supply chains to avoid delays down the line.

Delivery considerations: The construction process has traditionally been focused on what takes place on site and is often highly labour intensive. This provides an opportunity for wider intervention (e.g., for supply chains to engage local people), and to develop their skills and employment outcomes (e.g., through apprenticeships). However, it also poses a challenge given the impact on neighbours and local residents. Therefore, there is a need to operate in an appropriate manner and many firms are members of schemes such as Considerate Contractors. The sector is also gradually exploring opportunities for more off-site activity (e.g., Modern Methods of Construction) to reduce the risk from weather and improve quality by operating in a controlled environment.

Health and safety: Given the sector’s record, this should be prioritised throughout the development process and follow prevailing law and good industry practice. This includes implementing appropriate safety measures, providing adequate training and supervision, and ensuring that all employees have the necessary certification and personal protective equipment when on site. Complying with all relevant health and safety regulations and maintaining a safe working environment for all workers and visitors to the site is essential to avoid accidents and injuries and the adverse implications this would have legally, financially, and reputationally.

Operational readiness, handover, and use

Many developments stumble at the final hurdle through a failure to properly prepare for an effective and efficient handover. Planning for the final stages is a part of successful development, which includes:

Operational readiness: Early consideration needs to be given to this stage, the physical scope of what is being delivered through the development process, and how final testing, commissioning of systems and installations (e.g., furniture, fittings and equipment are provided). Sufficient time and resources need to be allocated to this, noting that in many instances this stage will bring together different parties (e.g., developer, contractor and end-user). This requires careful planning and clear roles, responsibilities, and accountabilities to be set out. It may also include user acceptance testing and formal certification/handover documents.
Handover: This needs to be planned and executed efficiently and effectively to ensure that all relevant training, familiarisation, and documentation, including operating and maintenance manuals, are available. Whilst there may be some outstanding or defective works present at handover or practical completion, these need to be scheduled for completion within a reasonable timescale. The defects liability period will also commence, so it is important that close liaison continues between the developer and occupier so that any health and safety or business critical issues are dealt with promptly. Maintenance arrangements also need to be commenced (which should be organised during the operational readiness period).
Sustainability in use: Consider factors such as energy efficiency, water conservation, and the use of sustainable materials. Incorporating sustainable features into the development can increase its appeal to potential buyers or tenants and reduce its environmental impact. In practice, this should be considered through the design brief to provide the appropriate technical solution, and then this provides the opportunity for the occupier to operate the facility in a sustainable manner.

Assets and facilities management

Asset and facilities management often reflect the largest costs over the economic life of a development and can provide the opportunity to increase asset value if undertaken well. Some considerations include:

Leased or owner-occupied developments: Leased buildings may offer flexibility for the occupier to move or expand as needed, subject to leasing arrangements and availability of other facilities. They will also oblige the occupier and landlord to maintain, repair and insure the building or parts of it respectively, depending on the lease terms. These responsibilities will all rest with one party where the development is owner occupied.
Property and facilities management: Regular maintenance is essential to ensure that the development remains in good condition and retains its value. This includes tasks such as cleaning, landscaping, and repairs. It is important to consider who will manage the development on a day-day basis and what that will cost. Typically, an annual budget will be assembled, and this may also include a sinking fund provision for longer term or more significant maintenance or repair requirements (e.g., re-roofing or replacement of major plant). Facilities management services may extend beyond hard (asset-based) services to soft (people-based) services where appropriate.
Tenant management: If the development site is leased out, effective tenant management is critical to ensure that the tenants needs are met, they are retained where desirable, and that rental income is optimised to maximise asset value. This includes tasks such as tenant screening, lease management, rent collection and service charge administration.

End of economic life: Exit Strategy

Exit strategies are dynamic, adapting to current market conditions, environmental and policy influences, and the demand for the particular type of development. Beyond the traditional asset disposal, a prominent and pressing consideration revolves around the choice between retrofitting and redevelopment as the development reaches the end of its lifecycle, for instance:

Exit strategy: Develop a clear exit strategy for the development site at the end of its economic life (e.g. when the opportunity to redevelop becomes more economically advantageous than maintaining the asset). This should consider factors such as the expected useful life of the development, the local real estate market, and the intended use of the development and whether this still meets demands and expectations. The exit strategy should outline the steps that will be taken at the end of the useful life of the development, whether that involves renovation, repurposing, or demolition. This will also be influenced by environmental considerations such as embodied carbon within the development.
Disposal: Dependant on various factors, such as the current market conditions, the type of property, and the desired return on investment. Common disposal strategies include selling the property outright or selling shares in a special purpose vehicle that holds the development. It is essential to select a disposal strategy that aligns with the project's goals and objectives. However, each strategy has its own advantages and disadvantages, as well as varying levels of risk, which must be carefully considered before making a decision.
Retention and redevelopment: The decision to redevelop or retrofit a building at the end of its useful life hinges on various factors, including the property's condition, prevailing market conditions, desired return on investment, and sustainability considerations. If the property is in poor condition or does not align with current market demands, demolition may be the preferred option. Conversely, if the property holds potential and can be renovated to meet market demands in a sustainable manner, this route may present a more cost-effective and environmentally conscious alternative to pursue. For more resources on retrofit, visit our Local Growth Knowledge Hub’s article on Retrofit for Heritage Buildings.

Development Risks

Key risks to consider in any Development Process include the following:

Market - Development may be affected by the state of the economy or market at a national, regional and local level (e.g., where values are increasing or declining). Cost inflation coupled with value reductions may challenge viability.

Design - Design is an evolutionary process, reflective of the site and proposed development and needs to accommodate unforeseen conditions or requirements over time. An appropriate allowance for design development is essential.

Construction - Construction delays, cost overruns, and quality issues can impact the project timeline and budget. The sector relies on complex supply chains and is often exposed to weather conditions thereby exacerbating risk.

Financial - Changes to fiscal policy and lending rates may result in increased borrowing costs to fund the proposed development and challenge financial viability.

Environmental - Ground conditions, flood risk, non-compliance with environmental standards or other environmental issues will have an impact the development process and can result in additional costs and delays.

Regulatory - Changes in government, zoning laws, building codes, or other regulations that can impact the development process and result in delays or additional costs.

Land - Changes in zoning, environmental, title, market, and infrastructure issues, can either delay the development or even prevent it from coming forward at all.

Development Stakeholders

To help mitigate against the risks outlined above (and ensure the requirements of key experts and communities are fed into a development), roles and responsibilities for the stakeholders listed below should be identified and managed effectively.

Statutory and Public Groups

Local government officials – Provide and enforce regulation guidance including zoning. Building codes and permits;

Planning Authority – Review and approve planning applications and monitor the discharge of planning conditions;

Community members or neighbours – May be affected by the development and may support or object to planning applications;

Environmental groups – Advocate sustainability and may provide input on the potential environmental credentials or impact of the development;

Utility companies – Supply infrastructure, such as water, electricity, and gas and renewable technologies.

Construction

Development Manager – Oversee the entire development process, including monitoring budgets, coordinating with stakeholder, and ensuring the project is completed on time, budget and to the desired quality standards;

Contractor – Undertake the physical construction of the development. Assemble and manage supply chains;

Engineers – Design and implement the technical aspects of the development, including structural, mechanical, and electrical requirements;

Architects – Design the development, includes layout, aesthetics, and functionality;

Master planner - Oversees site analysis, design coordination, regulatory compliance, infrastructure planning, community engagement, and project management. They ensure the development complies with regulations, engages stakeholders, and a liaison between architects & planners. They are often a requirement for regeneration schemes;

Cost consultant – Oversee the budget and report on expenditure;

CDM Co-coordinator – Oversee health and safety in the delivery of development.

Service providers

Occupiers – The end user of the development;

Real Estate agents – Undertake marketing and selling or leasing the development;

Property managers – Oversee day-to-day operations of the development;

Legal advisors – Provide legal advice and support, including drafting and reviewing contracts/leases.

Funders

Investors – Provide debt or equity investment for a stake in the development ownership and returns;

Lending institutions – Offer loans or other forms of financing to support the development;

Public bodies – If applicable to the development may offer grant or loan funding or wider support should certain criteria be met.

Conclusion

In summary, the development process is a comprehensive journey that encompasses various stages, each demanding meticulous planning and execution. These stages range from the inception of design and town planning, through construction and operational readiness, to the formulation of an exit strategy. Each stage is influenced by a multitude of factors such as market dynamics, site specifics, financial feasibility, and regulatory compliance. The development process also involves a wide range of stakeholders, including local authorities, community members, design and construction professionals, and financial backers. Their roles are integral to the project's success.

It is crucial to recognise the potential risks at each stage of the development process and devise strategies to mitigate them as well as how to deal with them effectively if/when they occur. In essence, a well-managed development process can lead to the creation of valuable assets that contribute to placemaking, stimulate economic growth, and foster new communities.

Rebecca is a Chartered Surveyor under the RICS with over eight years of real estate experience. Prior to joining Deloitte in London, Rebecca spent six years in the Middle East working on major mixed-use development projects across the UAE, KSA, Qatar, Oman and Bahrain. Over her career, Rebecca has advised on complex projects at all stages of the development lifecycle and has provided both creative advice at a strategic level and detailed financial and commercial advice on a finer scale.

If you have any questions on this topic, or would like support, please contact your Delivery Associate, or email DeliveryAssociatesNetwork@Arup.com