In a sense, local authorities have long been major property owners. Many councils have significant portfolios of retail and office properties, after all, and while a huge amount of housing stock has been transferred to housing associations since the 1980s, some authorities remain major residential landlords.
However, it is increasingly clear that councils are now acquiring commercial properties as investments pure and simple. What’s more, a spate of deals completed over the summer show that authorities are increasingly buying up properties outside their jurisdictions and that cannot contribute to regenerating the communities for which they are responsible.
For instance, in July it emerged that Surrey County Council was acquiring the Malvern Shopping Park in Gloucestershire from Consolidated Property Group (CPG) for £74m. The move followed the acquisition in November last year of a leisure and residential property at 49-59 and 77 Friar Street in Worcester for £11.8m from Avignon Capital, while in April 2016 it bought EE’s regional headquarters in Bristol for £20m.
Surrey is far from alone. Facilitated by cheap loans from the Public Works Loan Board, councils have significantly increased their share of total UK commercial property investment. According to figures from Savills, in 2015 councils spent £146m on commercial property (0.2% of overall investment), but the figure rocketed to £1.1bn (2.5%) last year. In the first six months of 2017, authorities invested £681m (2.6%).
The rationale for councils to invest is clear: after years of cuts to central government grants they need to secure new income streams. However, many worry that they are taking on risks they do not fully understand, with former business secretary Vince Cable telling The Times that it is “not a wise and sensible thing to do” and describing the fact that many are investing outside their jurisdictions as “bizarre” and “shocking”.