13 Jul Councils invest in commercial property to boost their revenues
Britain’s councils invest in commercial property as they try to replace revenue lost through government cuts, an investigation by The Times has found.
Local authorities are taking out loans to buy shop premises, offices and business parks despite having little or no investment experience, raising concerns that services will have to be reduced if the property bubble bursts.
Councils have paid £2.7 billion for commercial properties since 2015, up from £500 million over the previous three years, freedom of information requests show. Experts warn that some are building “exceptionally risky” portfolios. Spelthorne district council, a small authority in Surrey, has invested £422 million this year, or £10,600 for each household in its borough.
Local authorities now account for up to a third of buyers in some areas, inflating prices. If rents collapse, councils face the prospect of debts that they can afford to repay only by cutting services or raising taxes.
The Royal Institute of Chartered Surveyors (RICS) has warned that demand for retail space is falling and rents stagnating as consumers curb spending or shop online.
The Times made more than 350 freedom of information requests to every local authority in Britain and found that almost half have made at least one commercial property purchase since 2012. One in five local authority has spent more than £10 million and eleven have spent more than £50 million.
Some have invested tens of millions of pounds in shopping centres despite concerns that the internet is hurting bricks-and-mortar retailers. Many councils are borrowing from the Public Works Loan Board, a Treasury agency, to fund purchases. These loans are attractive because they cost less in interest than the income councils receive in rents.
James Page, from Page Hardy Harris says:-
Property Investment is an area of the market quite different to any other. Demand is driven by comparison to other investments available and relates more to risk and longevity than it does to location.
That said the better locations will often attract the better “covenants” or tenants. At Page Hardy Harris we have advised Investors from major Pension Funds and substantial Property Companies, to small one asset investors, and everything in between. If you need our help, we will take your investment criteria and go out to the market to source the best fit for your needs, advising you on all aspects of the asset.
The public accounts committee warned last year that councils lacked the talent needed for such investments. Its report said: “The market value of the commercial skills and experience required is not a good fit with local- authority pay scales.” The committee added: “We are concerned the Department for Communities and Local Government [DCLG] appears complacent about the risks.”
The Treasury does not record the reasons for loans. The Times has passed its findings to both departments. The Local Government Association said that councils followed strict rules before making investments. The DCLG insisted that there were “strong checks and balances” to protect taxpayers’ money and that it “actively monitors” transactions, although it declined to give details of how.
Contributor: Susie Page