New guidance prompts property strategy rethink

West Berkshire Council may revise plans to invest £100m in commercial property, following the publication of new guidance for local authorities and interest rate rises.

The council’s overview and scrutiny committee is due to meet tomorrow (January 14) to discuss a report on whether to continue with its current property investment strategy.

The report states that the current strategy has a capital budget of £100m, of which £62.6m has already been spent on commercial property.

It adds that this investment has brought net income of circa £1.153m in the current financial year.

But the report also states that following the increase in Public Works Loan Board (PWLB) interest rates last year and new guidance from the Chartered Institute of Public Finance and Accountancy (CIPFA), consideration needs to be given ‘to any further progression’.

‘With recent changes in CIPFA guidance and increases in PWLB borrowing rate, this will impact the future approach to commercial property and the risks versus benefits,’ the report adds.

The report states that continuing with the current strategy is ‘unlikely to be acceptable as a viable option’ as it risks non-compliance with latest CIPFA guidance and on that basis is ‘unlikely to receive the support of the 151 Office’.

Another option is to amend the current strategy to reflect both the CIPFA guidance and current market, while retaining the £100m capital budget.

‘This is likely to result in the current UK wide investment being restricted to acquisitions within West Berkshire only, reducing the potential for acquisition, and requiring amendment to the acquisition criteria to offer best chance of success,’ the report states.

‘West Berkshire Council having spent £62.6m on commercial property investment is deriving a revenue income,’ the report adds.

‘With a single property from the nine acquired currently vacant, this has impacted the income over the period this asset remains vacant. Once fully let, the income will be in line with that anticipated from this level of investment, but not at the level planned for a full investment of the £100m budget.

‘With amended CIPFA guidance and increased PWLB borrowing rates, coupled with emerging strategic direction related to the environment and housing, the council is currently reviewing its wider approach to investment and the commercial property investment will sit within that wider investment context.’

Photo Credit – Nattanan23 (Pixabay)

Jamie Hailstone
Senior reporter - NewStart


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