South Somerset District Council has announced the purchase of Linden House, an office block in Clifton, Bristol, for £2.75m.
Councillor Henry Hobhouse, portfolio holder for property, said: “Current availability of offices in Bristol is particularly low at around 4% which is aiding rental growth.
“This property is in an excellent location, with a blue chip tenant and strong reletting potential should they decide to vacate at the end of the lease.”
Like other councils, South Somerset has been increasing its property investments in order to generate income to fund its services.
The council needs to deliver savings between 2018 and 2022 rising to £6m p.a., and has suffered a 70% cut to its revenue support grant since 2010.
It is targeting an annual income of £2m in investment income, to which it says ‘great progress is being made.’
Its Investment Strategy has a budget for commercial income in 2019/20 of £1.16m, which is based on a portfolio value of £25.6m at 31 March 2019, and a projected net yield of 3.65%.
The portfolio has expanded via acquisitions from a value of £17.6m at the previous year-end.
The council claims its commercial property team is taking a prudent approach, rejecting many projects including for example last year a car showroom in Newcastle, and an industrial state in Poole.
Its Investment Strategy says: “The council is aware that the commercial property market has been improving since 2009, and is considered by many to be near its peak.
“Therefore, any investment needs to show potential for improvement to allow values to be maintained should there be a downturn”.
The portfolio has a focus on retail and alternative energy, and the council is looking to balance this with investments in industrial property and offices.
The council says it will avoid ‘undue risk’ in its retail investments, though these accounted for two-thirds of its holding at end-March 2018.
According to its projections, this will have fallen by end-March 2019, chiefly through new investments in industrial property, though at 46% its exposure to the sector will remain high.
As with the Linden House purchase, the council is prepared to invest outside its immediate area, but so far has invested within three hours travelling time of Yeovil to enable closer management.
The council says its investments are proportionate, with its forecast investment income for 2018/19 being 3.2% of its gross service expenditure.
