“Gloucester city council has bought a local retail park for £54 million, almost four times its net annual budget.
It acquired St Oswalds from Hammerson, the FTSE 250 shopping centre owner that is seeking to sell all its out-of-town properties. Tenants at the site include B&Q, Homesense and Mothercare, which went into administration this month.
A spokeswoman for the council said that it could not yet comment on the acquisition because of a non-disclosure agreement.
Councils have spent hundreds of millions of pounds on commercial property in recent years as they try to create a rental income stream to plug funding cuts from central government. Some have sought to buy neglected shopping centres in their areas as part of regeneration plans.
However, critics have raised concerns about the extent to which councils have tied their futures to an uncertain property market. Retail park valuations have fallen sharply as a series of well-known store chains have fallen into administration or have used insolvency procedures to close shops or lower rents. Hammerson reported a 10.9 per cent fall in the value of its retail parks in the six months to the end of June.
The Conservative-led local authority in Gloucester created an £80 million property investment fund in 2017 to help to make up for a £2.6 million deficit anticipated for the subsequent five years. It said that it would borrow 100 per cent of the cash for the fund, indicating that it would seek to find money from the Public Works Loan Board, the government body that issues loans to councils for capital projects.
The Treasury has started to crack down on risky property acquisitions by local authorities by increasing interest rates on new loans from the board. Before last month, the government charged an interest rate margin of 0.8 percentage points over the gilt rate; this has more than doubled to 1.8 percentage points over the gilt rate.
Last month Robert Jenrick, the housing secretary, criticised local authorities that had used borrowing from the board to buy “quite risky assets” outside their areas. He cited shopping centres, which he said “may well not turn out to be good investments at all and [are] only possible because the taxpayer is providing such attractive loans through the board”.
Source: The Times (pay wall)