Councils have bid and bought from every Allsop commercial auction this year as they search for new ways to generate revenue amid continued government spending cuts.
“Councils have become regular buyers and that is a sea change,” said Allsop partner George Walker. “They add to the range of buyers.”
Councils buying at auction is part of the trend, seen in the private treaty market, of local authorities using cheap debt arranged through the Public Works Loan Board to become buyers of income-producing assets such as shopping centres and offices. With interest rates of around 2-2.5%, councils can enjoy “the delights of cheap capital”, and achieve an attractive return, Walker said.
Spelthorne Borough Council in Surrey recently purchased a huge BP office park in Sunbury-on-Thames for £360m using a 50-year loan from the Public Works Loan Board. The site has been rented back to BP on a 20-year lease, and will generate £3m per year for the council to help it protect services.
Some councils have formed joint ventures to increase their buying power and many have formal arrangements with property experts, Walker said.
Acuitus chairman Richard Auterac said: “Historically, local authorities haven’t bought commercial properties. But recently it has become a way of getting a return on their investment.
“The advantages are that the authority knows where they stand by the end of the auction. It is quick and decisive.”
However, he said most of the lots Acuitus had sold to authorities had been through prior sales. “It is difficult for an authority to get sign-off for an indeterminate sum. It tends to be retail and relatively small,” he said.
Comment: Claire Kober, chair of the LGA’s Resources board
“Councils experienced a 40% reduction in central government funding over the last parliament and funding pressures will continue over the next few years. This means taking difficult decisions about which services are to be scaled back or stopped to plug funding gaps.
“Against this backdrop, councils are having to look for new ways to generate revenue. Across the country, council officers and members are developing the skills and expertise to take a more commercial approach to investment decisions.
“All commercial activity involves risk. Authorities have to adhere to strict rules and assessments before making a decision to ensure it is affordable and provides value for money. The LGA is supporting councils to develop understanding of these risks and opportunities.”
