The cost of a new indoor arena in Cardiff has increased by £100m. As well as being hit by spiralling construction inflation costs, the projected completion date of the 17,000 spectator capacity venue has also been pushed back a year.
Back in 2020, following a competitive tendering exercise, US entertainment venue giant Live Nation - whose development partner for the project is Oak View Group - was named by Cardiff Council as its preferred developer to deliver the arena for the city with a capacity for 17,000 event goers.
The project in Cardiff Bay will form a central part of the wider redevelopment of the Atlantic Wharf area alongside new residential units, office space, hotels, shops, bars, restaurants and tourism and cultural attractions . The redevelopment of the area, with a new Metro tram link running through it from Cardiff Central Station, could see Cardiff’s Council existing headquarters building at Atlantic Wharf - County Hall - being demolished.
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The land site created would be earmarked mainly for residential use. The masterplan for Atlantic Wharf forecasts around 1,000 residential units. The overall mixed-use development - delivered by private sector developers and investors - would take around a decade to complete.
However, with spiralling construction cost inflation the price tag for the indoor arena has risen significantly from the £180m initially forecast to £280m. The original financing model would have its cost effectively covered by the council utilising its prudential borrowing powers to draw down £170m of long-term repayable finance through the UK Government’s Public Works Loan Board (PWLB) and Live Nation then entering into a 45-year rental agreement. The rental income would cover the council’s borrowing costs.
The local authority is unable to raise its borrowing with the PWLB and under procurement rules cannot reduce the rental agreement with Live Nation. However, the board of Live Nation has committed to funding the shortfall - underlying the confidence it has in the profitability of the arena over the long-term.
They are though looking to reduce the capital cost - without compromising the arena’s spectator capacity - with an ongoing review of its design, remediation, infrastructure and energy requirements. The building could be reduced in size by around 10% while still maintaining its original capacity for spectators. Cost savings identified could reduce the overall construction bill to around £250m.
The arena was scheduled to open in 2025. Assuming there is financial sign off it will now not be completed until 2026.
The council, also through the use of PWLB borrowing, has committed to raise a further £10m to finance the relocation of the existing Travelodge in Atlantic Wharf to accommodate the arena - which will be located on the existing surface car parks of the Red Dragon Centre leisure venue and part of that provided at County Hall.
The financing of the indoor arena and wider redevelopment of Atlantic Wharf - for which a masterplan was agreed last year - will be considered by Cardiff Council’s economy and culture scrutiny committee tomorrow.
A report to the committee says: “Following the pandemic the UK economy has experienced significant volatility with abnormal levels of inflation and significant interest rate rises. Inflationary pressures have pushed the original design of the new indoor arena from the procured figure of £180m to close to £280m.
"The council’s financial envelope established through a public procurement process is capped and therefore Live Nation has had to take responsibility for these price increases. Live Nation remain committed to the project and has secured board level approval to cover the costs. Nonetheless, Live Nation is now working to reduce the level of the increase through a review of the arena design and reconsideration of the infrastructure requirements.”
The report adds that subject to a final contract with Live Nation, work on the arena will start in January 2024. However, it is understood that this could potentially could be brought forward to the autumn following financial closure in July through the signing of a development funding agreement. Whatever the starting date, the arena will not become operational until 2026 having originally planned to open in 2025.
Once the new arena is operational Live Nations’ existing venue in the city centre - the Cardiff International Arena - will be closed. It could then be demolished for new development, potentially in a joint venture with the owner of the adjacent office buildings and surface car park, Rapport.
The council’s preferred option for the Red Dragon Centre, which it acquired in 2019 from British Airways Pension Fund in a deal believed to be around £60m, is for it to be demolished to make way for new development as part of the wider Atlantic Wharf scheme. A new centre would then be built with around 150 apartments above it. A soft marketing exercise to attract investor interest for the existing Red Dragon Centre site is now under way. The council has begun negotiations with existing key tenants at the Red Dragon Centre over relocating to a new facility.
A multi-storey car park for 1,300 vehicles is also planned to support the indoor arena and loss of surface car parking at County Hall and the Red Dragon Centre.
The council is currently in talks with the Wales Millennium Centre which has plans for a new production studio facility, known as Capella, located with the Atlantic Wharf mixed-use development project.
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