Portsmouth looks beyond borders with Manchester property investment
0
Photo: CBRE
Portsmouth City Council has acquired an office block in Manchester for £9m, weeks after new guidance came into force aimed at preventing local authorities from borrowing cheaply from government to invest in commercial property outside their boundaries.
The authority has completed the purchase of Queen’s House in Manchester with a price understood to reflect a net initial yield of 4.75%.
As the purchase uses money borrowed from the Public Works Loan Board before the guidance came into effect in April, the council believes it is compliant with the revised investment code.
Chris Ward, head of finance at the council, told Room151: “This purchase was ultimately made using our PWLB borrowing.
“However, we had already undertaken the borrowing before the statutory guidance came in, and it has been approved through our capital programme.
“We believe this means that it does not count as borrowing in advance of need.”
The council has also bought an industrial park in Warrington under similar circumstances within the past few weeks, Ward said.
The council’s £183m commercial property acquisition strategy uses £150m of borrowing from the PWLB, all of which was borrowed before April.
Only around £30m of the total programme budget remains to be spent.
In April, new guidance came into force which required councils to explain their reasons if they invest in property for any other purpose than regeneration within their own boundaries.
The government reviewed the guidance after hearing concerns from the private sector that it was at a disadvantage due to the cheap rate of borrowing available to local authorities.
Purchases made using councils’ own resources are unaffected by the rules.
Last year, The Times reported that local authorities have invested £2.7bn in commercial property since 2015.
This week, The Financial Times quoted James Findlater, head of UK shopping centre investment at property adviser Colliers, saying that councils are buying shopping centres “from sleepy institutions or desperate private equity investors that cannot wait to move them on”.
He said: “Each cycle has dumb money that, for whatever reason, has different motivations. This cycle the dumb money is council money.”
Meanwhile, Selby District Council has approved an increase of £2.5m for an investment pot — originally worth £1m — to be spent on commercial property in its district.
It said that returns from the investment would help it fill a budget gap over coming years.
A report to councillors said: “If we achieve a direct ROI of 7% then this will generate the £250k savings required by 2020.”
