Garrison Barclay Estates, the developer behind the Chartist Tower regeneration in Newport city centre, has warned that the award-winning four-star Mercure hotel may be forced to close unless Newport City Council agrees to a new ground lease arrangement. The developer says the current lease terms render the project commercially unviable.
Investment and Current Status
Garrison Barclay Estates invested £11 million of its own cash reserves into the project, which opened in 2022 and includes a 140-bedroom hotel, approximately 25,000 sq ft of office space, and 15,000 sq ft of retail space, of which 12,000 sq ft is let. The total cost of the regeneration, including bank debt and £1.6 million in Welsh Government grant and loan support provided via Newport Council, is around £21 million. The hotel employs more than 40 people and has maintained strong occupancy levels, but profit margins have been eroded by inflation. The office space is currently vacant after the South Wales Argus relocated, leaving the developer liable for empty business rates.
Ground Lease Dispute
The current ground lease relief expires in December 2027, after which the annual payment would rise to £315,000, compared with around £220,000 before the pandemic. Garrison Barclay Estates says it has commissioned independent reports from Carter Jonas and BNP Paribas Real Estate supporting a reduction in ground rent, but the council has not agreed. The developer has proposed a revenue-sharing model where the ground rent would increase as a percentage of revenues as more tenants are secured and hotel EBITDA improves, with the annual payment potentially reaching £220,000. The company says this model would provide full transparency through access to the scheme's accounts.
Andrew McCarthy, chief executive of Garrison Barclay Estates, said: "The ground rent structure for Chartist Tower was originally established when the building was occupied by a department store and office accommodation, and it no longer reflects the economic reality of operating a modern city-centre hotel." He warned that without a new agreement, the hotel could close, and noted that housing associations have already expressed interest in the property. He added that other local authorities have concluded they need to be more realistic over ground lease rents to sustain commercial investment.
Economic Impact and Wider Context
The hotel generates an estimated £10 million annually for Newport through visitor spending. McCarthy said the company invested based on the council's regeneration vision, including a proposed knowledge quarter and anticipated conference delegates from ICC Wales, but these have not materialised. He stated: "This is no longer simply about ground rent, but about whether Newport wishes to protect one of its most successful regeneration projects or risk losing a key city-centre asset that has already delivered jobs, investment and economic growth."
Garrison Barclay Estates has given the council until July 17 to reconsider its position, after which it may put the hotel up for sale. McCarthy warned that new owners might convert the property to accommodate asylum seekers or social housing, which could harm the city centre's vitality.
Council Response
A Newport Council spokesman said the council has provided considerable financial support and is owed significant sums because the developer has not paid interest on the council-provided loan as agreed. The spokesman stated: "Over the last two years, the developer has approached us for even more financial support on more than one occasion. The council has consistently refused, despite 'warnings' that the hotel would be closed if it did not agree." He added that the council is considering the latest proposal but must ensure taxpayer money is used responsibly.
The council also noted that the hotel is thriving, attracting thousands of guests, and new retail businesses have opened in Chartist Tower in the last 12 months.
Developer's Rebuttal
In a detailed statement, Garrison Barclay Estates challenged the council's assertions, saying the £1.6 million support was significantly less than the standard 10% of development costs for regeneration projects. The company claimed that during development, the council required the project to proceed with about 40% less grant funding than originally available, and converted £600,000 of grant into a loan that was never converted back. The developer stated: "We have not asked Newport City Council for further public funding. Our position has remained consistent throughout: we have requested only that the historic ground rent be reviewed and brought into line with current market conditions."
The company also noted that recent lettings in Chartist Tower were at rental levels significantly below forecasts, with some space occupied at little or no rent to support local businesses. It said the independent Carter Jonas report demonstrated why the ground rent requires review, but the council disregarded it.
