Local authorities have spent a huge £4.1bn on commercial property over the past four years and are on track to set a new annual spending record this year, according to exclusive data from Savills. Last year they spent a record high of £1.8bn, a whopping 1,868% up on the £93.8m spent in 2014.
As a result of this spending spree, local authorities have seen their share of total investment in the commercial property market grow from 0.2% to 3.4%. The investment push was sparked by the government’s announcement in December 2015 that local authorities would need to finance their spending entirely from locally raised revenue by 2020. Many councils took advantage of low-interest-rate loans available from the Public Works Loan Board.
With the supply of central government funding due to be cut off, councils need to find alternative sources of income to ultimately pay for the services they need to supply to their residents, says Mark Garmon-Jones, a director in Savills’ UK investment team. Hence the rush to invest in revenue-generating commercial property.
In many cases, councils are buying property in their own town centres to kickstart regeneration projects “that the private sector can’t or won’t do”, says Garmon-Jones, citing the example of retail-led regeneration schemes. “Interestingly, there hasn’t been a shopping centre bought by a local authority outside its jurisdiction,” he says.
Since January 2014, the top five biggest local authority investors in commercial property have been Spelthorne, Runnymede, Warrington, Canterbury and the City of London.
Just a fortnight ago, Spelthorne Borough Council, which had already spent £620m on commercial property since the start of 2017, acquired a £285m office portfolio from Landid and Brockton Capital.
Council spending on commercial property hit £994.5m in the first half of 2018, up from £681m during the same time period last year. Yet Garmon-Jones predicts spending in the second half will cool and end of year totals will be about the same.
He is not unduly worried about the prospect of local authorities becoming significant investors in commercial property. “As long as they are well advised, from houses like ourselves, then fantastic,” he says. “They just need to tread carefully and not get carried away.”
Source: Property Week