Local authority investment in UK commercial real estate plummeted in 2020, dropping by close to three-quarters from 2019’s record high.
At some 95 transactions worth a combined £600m, 2020 marked councils’ least acquisitive year since 2015 – both by number of deals and by total value – according to Radius Data Exchange. The market peaked in 2019, when councils ploughed £2.1bn into commercial property.
All asset classes saw a fall in investment year-on-year, with significant drops in spend in retail and leisure (down 83%) and industrial and logistics (down 79%). Alternative assets spend proved more robust, with a drop of just 19%.
Most of the largest acquisitions from 2020 came in the first half of the year, before the wider economic effects of the coronavirus pandemic began to bite. Surrey County Council, Spelthorne Borough Council and Runnymede Borough Council all bought assets above the £30m mark. The majority of 2020’s big-ticket purchases were offices and workspace, with retail having been the biggest bet for most authorities in 2019.
The outlook for investment now has shifted markedly. In November, the Treasury revealed changes to public lending that would block new public loans for so-called “debt-for-yield” commercial property investment. This means that if a council’s capital plan involves making an investment primarily for yield, the councils cannot turn to the Public Works Loan Board, making it much more difficult to leverage capital for “out-of-borough” investments.
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