9th November 2018

Local authorities boost real estate investment

Investment Agency   •   Public Sector

Last year’s trend of local authorities across the UK investing in commercial real estate has continued into 2018 with multiple acquisitions across the South West and Wales.

So far in 2018, local authority investment in commercial real estate has totalled circa £1.8 billion, reflecting 4.5% of the total value of UK transactions (Source: Property Data).

Some recent examples include:

• Torbay Borough Council’s purchase of Woodwater House in Exeter for £9.3 million / 6.69% NIY
• Torbay Borough Council’s purchase of Twyver House in Gloucester for £11.8 million / 5.6% NIY
• Monmouthshire County Council’s acquisition of Castlegate Business Park in Caldicot (see inset right)
• Bath & North East Somerset Council’s acquisition of Buildings 560 & 610 Bristol Business Park for £9.04 million / 5.73% NIY
• West Devon Council’s purchase of Bristol House in Bristol for £12 million / 5.18% NIY
• Plymouth City Council’s acquisition of Derrys Cross for £17.25 million / 5.2% NIY
• Plymouth City Council’s purchase of Breakwater Industrial Estate for £19.25 million / 5.9% NIY

So what is driving the trend?

Following a reduction in funding from central government, local authorities have been taking advantage of low cost borrowing available via the Public Works Loan Board to purchase income-producing commercial real estate, generating a net income surplus to supplement their income.

Local authorities have adopted various investment strategies, with some limiting their geographic search to their own administrative boundary whilst others have adopted a much more flexible approach.

Local authority investment “off-patch” appears to be a growing trend, representing an estimated 40% of transactions in 2018. The sole motivation for this is to provide an income surplus and has tended to garner a greater level of public scrutiny.

Investment within a local authority’s administrative boundary can deliver both an income surplus and/or a wider social/economic benefit eg facilitate regeneration, protect or create employment and stimulate economic growth.  This type of investment has therefore tended to be much easier to justify.

Through our regional network of offices, we are uniquely placed to provide expert insightful advice to local authorities seeking to invest in the South West and Wales.