Portsmouth City Council’s acquisition of a business campus this week for £138m represents the largest property deal by a UK local authority so far this year, according to Radius Data Exchange.
The council confirmed on Monday (5 August) that it had acquired Lakeside North Harbour (pictured), located on a 120-acre site north of Portsmouth city centre, from Northwood Investors.
The site includes 594,000 sq ft of offices, 3,000 parking spaces and 8.7 acres of development land. The campus has an occupancy rate of 97% and more than 80 occupiers, including IBM, Regus and LexisNexis.
The move comes after the council increased its external borrowing limit by £70m from £737m to £807m.
Cabinet approved the proposal in June. In meeting documents dated 17 June, it said the increase would help “accommodate unexpected cash flows”. It added that when the authorised limit was set in March, the council had not anticipated making “an acquisition of this size financed by borrowing”.
The council said in a statement on Monday that Lakeside North Harbour represented “a different approach”. It added: “The previous investment purchases were primarily out of borough and driven by the level of return on the investment over the short to medium term. While Lakeside will still generate a positive return for the council, it is seen as a strategic acquisition, supporting the local economy for the longer term.”
Other council buys this year include Southwark Council’s purchase of Courage Yard by Tower Bridge for £89m from asset manager Columbia Threadneedle. This is the second-largest local authority deal so far this year, followed by Medway Council’s purchase of the Pentagon Centre shopping mall in Chatham for £45m from Pentagon Centre, Radius data shows.
However, Spelthorne Borough Council had attempted even larger deals in January. The council, based in Staines, was tempted by Aberdeen Standard Investments’ 100 Cheapside, EC2, and Ballymore’s One Embassy Gardens in Vauxhall, SW8, but the sums did not add up, according to council leader Ian Harvey.
In an interview with EG earlier this year, Harvey said: “Interest rates were becoming more volatile, plus the actual net margin that we work on is ultimately extremely slim. Both sellers were seeking a high purchase price against the yield which squeezed that even further and, in the case of Cheapside, when I became aware that in fact we weren’t buying a freehold and only a long leasehold was available, I got even more nervous.”
Both properties have still not sold, with Ballymore confirming in June that it had withdrawn One Embassy Gardens from the market, while Aberdeen Standard’s plans for 100 Cheapside are not known.
UK councils have been taking advantage of cheap loans from the Public Works Loan Board, an agency of HM Treasury, to boost their income following cuts in government funding.
Almost half of all councils – 168 – will no longer receive any core central government funding in the 2019/20 budgetary year, according to the Local Government Association.
So far this year, local authority investment in commercial real estate has reached £767m, according to Radius.
Investment levels first rose sharply in 2016, when they increased sixfold from £238m in 2015 to £1.4bn, and have risen each year since to £1.8bn in 2017 and £1.9bn in 2018.
Gerald Eve acted on behalf of Northwood on the Portsmouth deal, while Avison Young represented Portsmouth City Council.
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