Local authorities increase commercial property investments

The latest data from property firm Savills suggests that councils are increasing their investment in local commercial property. This year’s investment spend is expected to exceed last year’s total of £1.8bn, breaking records in the process. These commercial property investments could also be giving councils greater control over the local economy, which means the impact could be greater than expected.

Rising spend

Analysis by Property Week suggests that local authorities have been consistently increasing investment in commercial property since 2015. The trend seems to have begun in response to the government’s announcement that councils would need to finance their entire budget from locally raised revenue by 2020.

In the first half of 2018, councils spent £994.5m on commercial property, an increase of almost 50% on last year’s figure. Although spending is predicted to slow towards the end of the year, the annual total is still likely to exceed that of 2017.

Regeneration potential

While the goal of these investments is to boost council income through rental yields and price appreciation, there's thought to be much more at stake. Savills’ UK director Mark Garmon-Jones believes that councils are often investing in town centre regeneration projects 'that the private sector can’t or won’t do'.

This move towards increased control of local commercial property markets has seen councils increase their share of total investment in the commercial property market from 0.2% to 3.4%.

Cash flow concerns

Some commentators are, however, concerned that councils are investing too much capital in commercial property, particularly in shopping centres. CIPFA (the Chartered Institute of Public Finance and Accountancy) has warned that councils must ensure they have the commercial skills to communicate and evaluate the risks of their purchases.

Elsewhere, Mike Whitehead of LocalGov news network has suggested that councils must be extremely cautious of the current retail climate. A spate of bankruptcies has led to many stores demanding rent reductions, and councils must be ready to manage their rent effectively and to fight for any arrears that arise.

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