An official report has dealt what could be a killer blow to the long-awaited Bristol Arena being built on land next to Temple Meads.

A mixed use development on the area known as Temple Island made up of homes, offices and shops will be more beneficial to Bristol and less risky for the city council than building an arena on the site, according to a value for money report from KPMG released on Monday evening.

The report, however, says that an arena at Temple Island is “at this point in time… more deliverable” than building an arena at an alternative site in Filton.

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Despite a new footbridge currently being built to it and already connected to Cattle Market Road by an £11.3m bridge, and benefits in the report including increased employment and enhancing the city’s cultural offer, there now seems virtually no chance of building an arena on the site.

If a mixed use private sector development goes ahead, it could also host a hotel, conference centre and “business incubation space”, and despite being privately developed bring in millions of pounds of business to Bristol and help revitalise the local area.

In accountancy speak, “the level of financial return (of an arena at Temple Meads) does not represent a commercial rate of return for the residual risks being taken” by Bristol City Council.

It paves the way for the long-awaited Bristol Arena to be built and run by a private company at Filton within the Brabazon Hangar, which with a capacity of 16,000 would become the third largest arena in the UK after the O2 and London and SSE Hydro in Glasgow.

This would not require any direct public funding but in a juggling around of pots of money could benefit from £53m of West of England Local Enterprise Partnership cash to pay for new roads and possibly even a new railway station.

The owners of the former Filton Airfield are the Malaysian company YTL, who wish to see the airfield and arena development, according to KPMG, as “being a flagship for its ambitions”.

This is namely one of the UK’s largest development schemes, spread over a 350-acre site – with an estimated development value of £1.5bn – which will include more than 2,500 new homes and three new schools built over a period of 25 years.

Yet YTL’s requirements for developing the Filton Arena are that three major transport upgrades are

delivered:

MetroBus extension estimated at £35m

Metro West 2 estimated at £43m

a rail link to Bristol Parkway estimated at £53m

If successful, the report states that YTL’s proposal delivers an arena “with limited financial risk” to Bristol City Council.

However, “in a worst case scenario, for example where cost overruns threaten commercial viability, YTL could walk away from the development, leaving Bristol without an arena”.

Spending of the punters heading to the arena will clearly be concentrated around the Filton Arena development, with the report revealing that YTL has agreed to work with Bristol City Council and Destination Bristol to set up ticket packages, including city centre hotels, parking and transport, for arena events in Filton.

“This may mitigate the leakages from the City Centre of Filton Arena attendee spending to some degree,” the KPMG report says cautiously.

It does not state it clearly, but a close reading of the KPMG report seems to admit that the location at Filton is not as suitable for an arena as at next to Temple Meads, with “some leakage of economic benefit outside of Bristol”.

But “the strategic benefits of the Temple Island Arena would transfer to Filton”, the final assessment says.

In their report for potential alternative uses of Temple Island should an arena not be built there, KPMG state that “BCC could receive a significant return from the scheme (whether through land sale, overage or otherwise)…

“If the proposed development were pursued, BCC has indicated to KPMG that it would target the commercial development on the site to businesses in the creative and digital sectors as well as financial and professional services. This is because it considers that these sectors will benefit from close proximity to the new University of Bristol campus, as well as Temple Meads Station.”

Plans for the Arena Island site could also fit well into Bristol mayor Marvin Rees’ ambition of more high-rise developments for Bristol, with the report talking of “a transformational impact on the perception of the surrounding area (which) will generate interest in the area, increasing the likelihood of additional developments coming forward”.

Although they are somewhat cagey in their analysis, the KPMG report “suggests that the economic NPV (net present value) of the Temple Island Arena project is comparatively lower than the economic NPV of the alternative Temple Island development.

“This suggests that, based on the evidence currently available to inform the assessment, in cost and economic terms, the alternative Temple Island development proposals present better value for money and would generate higher economic impacts.”

One of the noted benefits of an arena at Temple Island was for it to act as a catalyst for the surrounding area, but the report states that because the University of Bristol has purchased the remainder of the site that would not be used for the arena development, as well as the former sorting office site, this “impacts the potential for further developments to be catalysed in future by the Arena”.

The total estimated cost to develop an Arena at Temple Island is currently £156.3m, exceeding the approved budget by more than £32m.

Risks identified by KPMG include “very little contingency, margin or profit” for the city council, with a potential operating deficit if additional costs were to arise.

Construction work on a 16,000-capacity arena at Filton is estimated by YTL to cost £100m and could start in 2020 with an opening date of mid-2022.

Bristol mayor Marvin Rees said: “I am grateful to KPMG for all their hard work in pulling together these reports, which now give us the foundations for an evidence-based decision about the best way forward for Bristol.

“There has been a lot of opinion and debate around the future of the arena. These reports now provide an opportunity for everyone to see the facts and have full view of the difficult and complex issues around this decision.”

Bristol North West MP Darren Jones added: “The value for money reports make a clear economic case for the arena in north Bristol, and not Temple Meads. But I can only support an Arena in my constituency if it comes with significant transport investment.”

The report – which can be read in full here – will be considered by cabinet on July 3, and prior to that will be debated at two meetings of the council’s overview and scrutiny management board.