Sour Investments In Council Commercial Property Deals

Is West Lancashire included in the current malaise in council investments in commercial properties?

In its efficiency plan 2016 WLBC wrote “Generating additional income and adopting a more commercial approach. Earlier this year the Council purchased a number of retail units at the Wheatsheaf Walks site in Ormskirk Town Centre, which should generate a financial return for the Council. We are also redeveloping Industrial Units at Gorsey Place in Skelmersdale to generate additional income. This will add to the existing Commercial Assets Portfolio that provides a significant contribution to the financial sustainability of Council services”.

And “Earlier this year a new senior management structure was implemented, which will enable the Council to continue to focus on its priorities but at a reduced cost. Similarly the internal audit service will be restructured over the next few months to provide the same level of service but with a financial saving. Staffing structures will continue to be reviewed to consider any opportunities for employee efficiencies”.

Just how many of these senior management structures, or restructures, have occurred over the years, and at what cost and what benefit? And “Following a strategic review of the cultural and leisure service, the revised Leisure Strategy’s key aims and actions provide direction for the service and will result in a quality and sustainable service offer”. What, with Serco in charge? Does Beacon Park Golf Course landfill/Vat unaccountability debacle ring any poor quality and unsustainable service bells?

The Sunday Times reports on “Families face higher tax bills and reduced public services as councils’ multibillion-pound investments in commercial property sour in the coronavirus lockdown. Local authorities have borrowed £6.6 billion since 2016 to buy shopping centres and office blocks to replace revenue lost by government cuts.

One council bought a shopping centre for £40 million weeks before lockdown in which more than 90 per cent of the stores are now shut. Another council paid £6.2 million for a hotel that the tenant has said will go bust without a rent cut of up to 80 per cent.

The British Property Federation says that only two thirds of office rents and one third of retail rents were paid on time in March. It expects those figures to halve again in June. Property groups are finding it difficult to sell retail parks at any price, and analysts predict lower office rents for years as more people work from home.

Analysis by the Bureau of Investigative Journalism has found that dozens of councils are reliant on income from investments to fund public services. One in eight pounds spent by Woking council, for example, is paid for by investment and rental income. In a recent report the council said reserves were in place to cope with temporary falls in rent but admitted that if there were a permanent reduction, “service provision would need to be reviewed”.

And the Sunday Times reported on Martin Shortland who spends most of his time working as an IT consultant, but last year the 52-year-old declared war on Spelthorne council. Frustrated by what he sees as a lack of transparency at the Surrey authority, which has racked up £1bn in debt by buying commercial property, Shortland set up “It’s Our Spelthorne”, an action group that aims to hold local representatives to account.

“If council taxes aren’t going up and services are still running, people don’t really care because they don’t feel it is affecting them,” said Shortland, from Ashford. “But what’s going to happen if this all goes pear-shaped?”. What indeed, as we now know that over the past five years, a raft of local authorities have tapped cheap government debt to splurge more than £6bn on commercial property.

Spelthorne council also has huge exposure to commercial property, having spent £1 billion on offices and shops in the past five years, including buying Elmsleigh shopping centre in Staines for £40 million 12 weeks ago. Almost £10 million of Spelthorne’s annual spending on services is funded by these investments, more than by council tax, business rates and government grants.

Demand for local authority services has risen in the pandemic but income from council tax and other services, such as parking, has fallen. Ministers have agreed to provide £3.2 billion to meet the extra costs but this week a group of MPs told the chancellor that the funding gap was four times greater. What, £12.8billion and growing?

This week Rob Whiteman,

head of the Chartered Institute of Public Finance and Accountancy, told MPs he was “quite worried” about councils “overexposed” to property. He said that Spelthorne had “borrowed too much”. Once interest and maintenance costs had been taken into account, Spelthorne’s £1 billion portfolio generates a return of less than 1 per cent for services. Mr Whiteman told MPs “You don’t have to be accountant of the year to know that’s quite a lot of risk”.

Borough Council took a major step forward with “the exciting Ormskirk Town Centre Strategy with the £2.88 million acquisition of Wheatsheaf Walk, which includes the units on Wheatsheaf Walk, and several units fronting Burscough Street. The 15 retail units, which include Wetherspoons’ Court Leet Pub and Greenhalgh’s bakery, went under the hammer with auctioneer’s Allsop. The purchase represents the Council’s largest ever investment in retail property.

“Buying retail property if appropriate buildings come up at the right price is part of the Ormskirk Town Centre Strategy, which the Council works on with partners to ensure Ormskirk has an even brighter long-term future”.

The WLBC bean-counters might tell us just how short is a long term retail future? If and when WLBC provides an up to date asset register we will know if West Lancashire has turned into a Spelthorne!

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s