Exeter Digest #54: Exeter Science Park special report

SPECIAL REPORT

Council sinks additional £1.25 million into struggling Exeter Science Park as company unable to repay £7 million debts

Exeter City Council is to sink an additional £1.25 million into Exeter Science Park after it emerged that the joint venture is unable to repay a total of £7 million in debts owed to or guaranteed by its shareholders, which also include Devon County Council, East Devon District Council and the University of Exeter.

Exeter Science Park is the third city council company to run into trouble after the dissolution of Exeter City Futures, which received more than £1.5 million of public funding, and losses of £4.5 million incurred by Exeter City Living that the council has yet to recoup.

The council’s external auditor recently criticised the council’s approach to governance and financial management of all three companies, identifying a range of issues including lack of performance monitoring, lack of objectives against which performance could be monitored and lack of oversight by councillors.

Exeter Observer analysis has found that only a single council report on Exeter Science Park has been subject to scrutiny since the company was incorporated fifteen years ago and seven of eleven council decisions on the venture have been made in private, with press and public excluded, without the related reports or business plans ever being published.

The council called an emergency general meeting a fortnight ago, bypassing its executive decision-making committee, to increase its equity exposure to the company to more than £2 million on top of £450,000 it previously allocated to fund project development and a £950,000 loan guarantee.

It said it did not have time to follow normal decision-making procedures despite the meeting’s focus on a ten-year loan that was not due for repayment until January next year. The council has sent three different senior officers to act as science park company directors in the past three years.

Exeter Science Park Ltd, which made a loss of £2,500 last year on turnover of £1.44 million, lists fixed assets worth £18 million on its balance sheet of which £15.3 million is freehold property. However its six buildings cost more than £24 million to construct and its 24 hectare Redhayes site was acquired, alongside two hectares to expand adjacent junction 29 of the M5, with another £18.7 million of public money. £4 million has also been spent on roads and other infrastructure.

The council and the three other shareholders hope to rescue the science park, which bills itself as the “South West’s centre of activity for businesses in science, technology, engineering, maths and medicine” (STEMM), by converting more than £7 million it owes into equity in the company.

They then plan to slacken its policies to allow non-STEMM tenants and attract private sector development partners to add to the 68,000 square feet of lettable space it currently provides.

However this approach risks repeating strategic mistakes made in the science park’s initial development phase which included underestimating the impact of competition from cheaper office space in the vicinity and the public sector ownership constraints that make it less attractive to the private sector.

In addition, Exeter Science Park has already diversified its offer. Exeter Observer analysis has found that only around a quarter of the 141 companies it hosts could be considered bona fide STEMM businesses. It already accommodates or provides a registered office address to dozens of real estate development and management companies, financial services companies and holding companies, among other non-STEMM entities.

The science park was expected to have created 2,500-3,000 high-value knowledge economy jobs by this year, but only 750 people are currently employed on site (0.8% of Exeter’s 95,000 employee jobs). Many of the STEMM companies it does accommodate are not the product of local start-up growth but instead rent branch offices and have head offices elsewhere.

Its occupancy levels have fallen from 96% to 70% in the past four years, well below its current 80%-plus occupancy rate break-even point. It appears that the occupancy rate only rose to near-capacity as a result of the pandemic because of a COVID-testing facility that has since closed.

Council officers are right to warn that the rescue plan is riddled with risk and that the shareholders may never get their money back.

Read the full report here.

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