Royal Mail has had a rough ride since the widespread adoption of email stole massive chunks of its consumer and business market share. Now that a parliamentary bill allowing the privatisation of the service has been passed, discussions have started concerning the sale of half of its historic Mount Pleasant sorting office in London, for around £1bn once privatisation kicks in.
The half being sold would be turned into flats under the plans, and comprises 12 acres of prime London real estate that has been in the network’s ownership for more than 120 years. The move is a little like applying for planning permission to build an extension to your house to maximise value just before selling up, and is indicative of how hard Royal Mail is having to work to make itself a palatable prospect for potential buyers or investors.. The site is located between King’s Cross St. Pancras station and the new Farringdon Cross Rail interchange.
It is just one part of the Royal Mail’s extensive national real estate portfolio, but the redevelopment will not be completed until after the privatisation around 2014, prompting fears that the private owners will simply asset-strip rather than ploughing the money back into the service. Last year Royal Mail’s sorting centre in Rathbone Place off Oxford Street was sold to Great Portland Estates for £120m, as part of a national downsizing programme that will ultimately halve the amount of real estate for which Royal Mail owns the freehold or lease.
The proposals come little more than a month after it was announced that the price of a first-class stamp would increase by 14 pence to 60 pence on 30 April 2012, the largest price increase for 37 years. Second-class stamps will also rise 14 pence to 50 pence. The increases came in response to Ofcom’s observation that the skyrocketing popularity of SMS messages, email and social networks over the last ten years were threatening the postal service’s long-term financial viability. Snail mail feeling the heat, then…
It’s understandable that the Royal Mail wants to increase its prices: as it gears up for privatisation it will want to ensure that its mail collection and delivery unit starts to look financially healthier. It lost almost £1bn over the last four years, and mail volumes have slumped by a quarter since 2006, to around 59 million letters and parcels per day.
The sale of the sorting office in Mount Pleasant has been opposed by the shadow postal affairs minister, Ian Murray MP, who said: ‘Rather than hundreds of millions of pounds they get from the sale of Mount Pleasant going back into Royal Mail following any sale, it'll go straight into the coffers of a private-equity company, no doubt into a tax haven.’
But if Royal Mail doesn’t start to make some money before being privatised, asset stripping may end up being the only way that investors can achieve value for money. We can only watch and wait…