Essex County Council is set to launch its property investment programme after a two year pause – using millions from the sale of the council’s education services organisation.
EES for Schools, a traded service operated within Essex County Council, was sold last year for an undisclosed fee, though reports suggest it may have been sold for between £15million and £18million.
Money from that sale is now being used to relaunch ECC’s commercial property investment strategy.
The £33million used to buy an office block in Watford, a retail park in Keighley, Yorkshire, and an industrial park in Guildford, has so far earned the authority a £1.8 million gross income – around five per cent gross yield.
But it stopped investing due to uncertainties over Brexit and new rules governing how local authorities can borrow to invest.
With money from EES able to be spent without borrowing, ECC is looking at different opportunities, including looking into investing in or outside Essex, what type of property, education and skills development, job creation or targeting housing growth.
However, Cllr Malcolm Buckley, sitting on the policy and scrutiny committee on Tuesday (February 25), said that the council needed to be cautious on over relying on retail and commercial property investments.
He said: “I am seriously concerned with the number of company voluntary arrangements going on, with the number of organisations asking for rent reductions. Although on the date of acquisitions we might have had a five per cent or better yield, in reality that yield is unsustainable.
“In turn if that yield reduces that will have an impact on the capital value of the property.
“I have a concern long term whether that is sustainable.”
He added: “It seems our head is in retail, industrial and office. They are areas I would not be investing in.
“But start to invest in housing which a lot of pension funds are investing in, healthcare facilities, where you get guaranteed rent for the NHS. It just seems to me our scope is not wide enough.”
James Cook, head of finance at ECC, said: “In terms of the sustainability of the yield, the performance has been good. That performance has been sustained for a little while.
“But these are investments – there will naturally be some volatility in that.”
He said that to mitigate risk ECC employs professional property advisors and reviews its portfolio every quarter.
He added: “At no point to date have we have any indication there is an imminent collapse of yield at any sites. I am confident we will sustain decent yields in the short to medium term.”