West Berkshire Council is to consider selling off its assets within a £62m commercial property portfolio to help ease budgetary pressures.
Over the summer, the council warned that due to the rising demand for services and associated costs, it was facing a “challenging” financial outlook, forecasting an overspend of £8.7m in 2023/24.
Joseph Holmes, executive director (resources) and section 151 officer at West Berkshire, outlined that actions to bridge the budget gap would include reviewing all expenditure and exploring opportunities to generate capital receipts through asset disposal.
In his latest report, which was presented to the council’s Scrutiny Commission this week, Holmes outlined that at the end of quarter one West Berkshire reported an overspend of £6.3m. He recommended that to help bridge the budget gap the council should consider divesting from its £62m commercial property portfolio over the medium term.
“Taking into consideration the current economic climate faced by councils with rising inflationary pressures, surges in looked after/supported populations and increasing capital financing costs, this report seeks to recommend that the council disinvests from the existing commercial property portfolio and utilises resulting capital receipts to future fund capital financing of investment in the council’s core estate and transformation programmes,” Holmes wrote in the report.
The report added that this recommendation is also based on the fluctuating Public Works Loans Board rates, which have risen since January 2022 from 2-3% to 5.7%. It outlined that £1m of future council-funded capital expenditure equates to a revenue financing requirement and cash flow impact of £75.5k annually.
In the report, Holmes also outlined that due to declining property valuations, the portfolio was valued at £51.4m in March 2023 compared to a purchase value of £58.6m. He stated that the portfolio has produced a total gross income of £18m, with an approximate annual £1.2m net contribution to the council’s core services.
Holmes told Room151: “The portfolio has performed well from an income element, with full rental collection in the last quarter. However, given the significant increases in future borrowing costs since the council bought and financed the properties (2017-2019), the financial benefit to the council is significant in reducing future capital financing costs, with net benefits of at least £3m by the end of the medium-term financial strategy.
“Given the comparatively small size of the portfolio, the council will also seek to reduce future capital costs, whilst being able to utilise the capital receipts to reduce costs and to support transformation activity to reduce costs across the council. The sale receipts will be negotiated as part of any individual disposal.”
A final decision on the disposal of West Berkshire’s £62m commercial property portfolio will be made by the full council at a later date.
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