Published on Monday, 17 July 2017
It’s not often that I sit down and read a newspaper, writes Clark Weightman director Carl Bradley, but I spotted an interesting story on the front page of The Times on Tuesday and felt compelled to actually buy the paper and read it. The article confirms what we in the property industry have known for a while and that is, that Local Authorities across the UK are major players in the commercial property investment market.
We get regular feedback from other Agents and investors that Councils are actively involved in purchasing sizeable commercial investments, frequently out bidding non authority buyers due to aggressive acquisition strategies and as result of them having access to cheaper loans. Cash reserves are also being invested.
In a market where there is already a shortage of stock access to such loans is driving prices up beyond the level that other buyers can support. The Times suggests that Local Authorities account for up to a third of buyers in some sectors of the market.
The logic is simple, Councils see property income as a replacement for other revenue that has been lost through government cuts with a greater return being received from property investments rather than cash in the bank.
Returns from property are always going to be greater than from less risky investments due in part to its illiquidity. If you need cash quickly, this can’t be guaranteed from a property sale as it takes time to realise an asset and if needed quickly this can often have an adverse effect on value. Income producing property can leave the landlord with a costly empty property if a tenant defaults or it becomes vacant after leases expire.
The Times suggests that if the property market stagnates or worsens then Local Authorities may lose out with falling values and reduced income. The money that has been invested is from the public and there has been concern voiced by property experts, that they should not be risking our money in this manner. This fear isn’t totally unfounded due to the cyclical nature of the property market. Many councils have invested in the retail sector which is a volatile market. RICS research warns that demand for retail space is declining and rents stagnating or falling in many places (not all) as consumers curb spending and move to online shopping.
The article goes on to say that under Freedom of Information requests, it has been revealed that over 50% of UK Local Authorities have invested in commercial property since 2012, with some spending more than £50 million. We don’t know whether any Local Authorities in our area have gone down this route and it would be unfair to speculate.
Commercial property remains an attractive investment for many people, but whether you are the Chief Executive of a Local Authority or a private individual looking to create a pension pot, it is important to take professional advice both in the acquisition process and then in the ongoing property management. If you are an experienced investor wanting a second opinion or a first time investor looking for some advice then we have a knowledgeable and experienced team here at Clark Weightman ready to help.