According to a recent BBC report South Somerset District Council (SSDC) is hoping to make a return of up to 14% on its investment in a “battery farm” (see below).
Dr Maik Schneider, from the University of Bath’s Department of Economics, said energy storage technologies were part of the transition to a greener economy.
He said without seeing the figures it was difficult to comment specifically but an estimated return of 7-14% seemed “high but achievable”.
He added with even a return of 4-5% it could bring in a reasonable income but warned the model may not be as profitable in the long term. [And SSDC increased their “investment” in this by c 25% last August]
South Somerset District Council has now spent more than £68 million on speculative property investments across the UK.
The local authority has been forking out millions of pounds at a time for properties as far as away as Wales and Milton Keynes – and it’s total announced expenditure has now increased to £68,725,000.
Most recently, the council announced on Monday (January 6) that it has purchased a £9,730,000 office block in Welwyn Garden City, Hertfordshire.
These investments have no direct impact on the district it serves, but the council claims the profits it hopes to make from the purchases will go back into local services.
The purchases are part of South Somerset District Council’s “commercial strategy”, which it says is needed due to “a complex financial climate”.
A council spokesman said the purchases are “prudent financial decisions which will create significant income”, and added each decision has been “rigorously tested and checked”.
The council’s biggest spend so far is £12.34 million, which it spent on a battery storage facility near Taunton.
In August, the local authority loaned an extra £2.5 million to private company, SSDC Opium Power Limited, in a bid to further increase the facility’s capacity, after an initial investment of £9.84 million in 2018.
The 13 properties purchased so far
Total spend = £ 68,725,000
Marks & Spencer, Yeovil (£7.65M): The council has said this investment is linked to the company having a long-term lease. Nationally, Marks & Spencer has moved more towards food and home delivery, and has closed stores, but it has not announced any plans to close its Yeovil store.
Wilko, Yeovil (£4.23M): This store is covered by a covenant, with Wilko holding the tenancy until 2025. Robert Orrett, the council’s commercial property, land and development manager, told the council in June there were “no indications from Wilko that there is any intention to leave Yeovil”, partially in light of the sale of Glovers Walk and the Yeovil Refresh regeneration proposals, he said.
Residential development of former care home, Marlborough (£4.29M): The council has not divulged the precise location of this former care home, which is being redeveloped into 15 apartments and three new houses. But the council has claimed it “should generate a healthy receipt” once construction is finally completed by the end of 2019.
Battery storage facility, near Taunton (£9.84M + £2.5M): This facility stores power and sells it back to the National Grid at peak times. But it is not yet operational. The council claims the site is worth more now than the costs of setting up the project, with Mr Orrett claiming its value will “significantly increase” once it is actually up and running. A further loan of £2.5 million was given to a private company – SSDC Opium Power Limited – in August in a bid to further increase the facility’s capacity.
Units 1 & 2, Dunball Industrial Estate, Bridgwater (£2.82M): This is the council’s first investment in the industrial property sector, which it claims is “the best performing sector” in the commercial property market.
Linden House, Bristol (£2.75M): The council purchased this property in February to take advantage of what claims is a “historically low availability” of offices in the central Bristol area. The offices have been occupied by Galliford Try PLC, a major housing developer, since 2007.
GoCompare offices, Newport (£4.66M): Also known as Imperial House, this was purchased due to its close proximity to Junction 28 of the M4 and was refurbished back in 2013. The council claims the abolition of Severn Bridge tolls will lead to greater trade between south Wales and Bristol, which will lead to more demand for office space and thereby “an upturn in rents locally”.
Bell House, Milton Keynes (£2.925M): This comprises 10,695 sq ft of “grade A office accommodation” over four floors, according to the local authority. The council claims rent levels will rise in the coming years as a result of the improving transport links in the area, including the new railway line linking Oxford and Cambridge.
Hasbro warehouse, Newport (£2.78M): This is the distribution hub for board game giant Hasbro, famous for the likes of Monopoly and My Little Pony. Located on the Reevesland Industrial Estate, the council claims it will provide a healthy initial yield – and with Hasbro owning the remainder of the estate, the council is hoping the company is likely to remain in this location in the long run.
B&Q shop, Glastonbury (£4.4M): This is a 27,000 square foot retail warehouse, with an 8,000square foot external garden centre and 4,000 square foot secure delivery yard. It has been tenanted by B&Q since its construction with an unexpired lease term of seven years. The council claims this property will be “shielded from the general malaise that has hit retail warehousing”.
The Ralph, Buckinghamshire (£5.95M): The Ralph is a veterinary referral hospital in Marlow, Buckinghamshire. The council claims the 25,550 square foot property will provide a “guaranteed income stream for at least 14 years”.
Centurion Mill, Exeter (£4.2M): The council’s latest acquisition is a site home to one of the UK’s leading manufacturers of fireplaces, a distributor of electricity, and a Greggs bakery. The council says it is confident in “the intention of the tenants to continue occupation for the foreseeable future”.
Alchemy, Hertfordshire (£9.7M): The huge, 38,880 sq ft office block in Welwyn Garden City is occupied by “well-known tenants” the council claims. The council’s portfolio holder for commercial strategy, John Clark, has claimed there will be rental growth in the area over the coming years and that the council will see “substantial income” from this property.
Council explains its “commercial strategy”
You can read the council’s reasoning for these investment decisions below.
How does the council decide on where it invests?
A spokesman said: “Every decision that is made is being rigorously tested and checked. The Commercial Property Team is working to ensure that SSDC does not overpay for property due to the lack of supply, and is not exposed to undue risk, for example within the retail sector, where significant changes are currently occurring nationally.
“SSDC is investing in a diverse range of locations and asset types to ensure that it spreads any risks attached to investments which reflects sound investment practice. This includes assessing whether an investment outside the district will deliver a better rate of return for our communities than a similar opportunity in South Somerset.
“The new asset forms part of South Somerset’s growing portfolio, which includes High Street retail, in town and out of town offices, industrial, energy storage and a residential development site.”
How does the council pay for these deals?
A spokesman said: “The council uses a range of funding sources including investments utilising its reserves (sums of money that are held so that there is a financial cushion to meet sudden unexpected costs) and internal borrowing, a process through which SSDC can borrow from itself and charging itself interest.
“This means that money that was previously in bank accounts is generating a higher rate of return with the proceeds used to protect services and deliver important projects in South Somerset. It does not involve investing money that would have been spent on services. In the highly unlikely event that we do need to access funding quickly in an unplanned way, our careful approach to investment means we can still do this.”
Why is South Somerset District Council becoming more commercial?
A spokesman said: “The council is currently operating in a complex financial climate where it needs to deliver savings rising to £6 million per year until 2022. This is in addition to having to cut its costs substantially since 2010.
“SSDC has sustained a 70 per cent reduction in its Government grant funding since 2010 and further reductions are likely in the future whilst demand for and costs of many services continues to rise. It became clear that SSDC needed to make the most out of its assets and look for new opportunities which could generate income to protect the wide range of services our communities receive and create opportunities to fund new projects.
“This is about making prudent financial decisions which will create significant income to get the best results for South Somerset but still, where possible, supporting the local economy.
“In the future, we will have countered the loss of grant funding from Central Government though sensible investment and we will continue to deliver vital services, parks and open spaces as well as exploring new opportunities to make South Somerset an outstanding place to live, play and work.”