It’s a sad fact that many local authorities are of course today under huge financial pressures. Rising population demands, Central Government cuts and caps on the amount that can be raised through council tax, have left many town halls looking for ways to make up revenue shortfall.
One route which some councils have taken in order to address this is investing in property. Indeed, in the last three years local authorities collectively spent £6.6bn on commercial property, £2.3bn of this being spent on retail property – including, notably, £759m on purchasing shopping centres.
But why are they doing this and is it wise?
Well, as readers of Public Property will no doubt be aware, many councils have taken advantage of relatively low interest loans from the Public Works Loan Board, in order to buy commercial properties which generate a good rate of return.
However, the commercial property market has of course suffered in recent years. Indeed, in London alone, an estimated 24,000 commercial properties are currently lying empty. This leaves property owners with assets that are exposed to risk if there is an economic downturn.
But whilst there may be some question marks over the sustainability of some properties – for example, shopping centres as retail destinations in the face of competition from online retailers – there are still clear opportunities to be had when it comes to councils repurposing or redeveloping existing assets, turning to alternative uses that often form part of mixed-use regeneration schemes.
I would argue, therefore, that to get the most value, local authorities need to become more creative as property owners.
In short, this means focussing less on retail as the backbone of economic activity and focussing more on alternative property uses, such as housing, leisure, education and commercial office space.
Diversifying is key
Diversifying the use of property assets can increase both their financial value to property owners (in this case, councils) and the value that they bring to the community – for example meeting demands for more housing or bringing more diverse economic activity to an area (which in turn can of course reinvigorate demand for retailers and help save the much maligned high street).
And establishing a flexible workspace offering can be integral to this. A crucial caveat is of course the need for local authorities to work with the right operator for such workspaces, in order that they are run efficiently and, more importantly reflect the needs and demands of local tenants.
But one reason local authorities are well positioned when it comes to flexible workspaces, is that the market for them is becoming increasingly niche. In other words, there is rising demand for flexible workspaces which cater for particular demographics and sub-sets of professions – for example, freelance mothers returning to work.
In this environment, the property owners who will thrive are those who have the most local community insight – something which local councils often have in abundance.
And the prize for getting this right can mean not only increased revenue but greater utilisation of council services, as well as wider local economic benefits. For example, the introduction of ‘The Workary’ flexible workspaces in London libraries has increased library use, and the repurposing of the abandoned Temperance Hospital Building in Euston was calculated to have generated £16.7m in local economic benefits in return for only £1.4m of funding.
So what does the future hold?
The Grimsey Review 2 reiterated the benefits that strategies focussed on repurposing existing space in order to diversify property use could have on reinvigorating town centres. And it seems that local authorities have been paying attention – for example, Leicester City Council is now one of the largest property owners in its municipal area, and crucially holds commercial property assets which include a range of workspaces.
But what I was most excited to see was Leicester’s recent decision to invest in repurposing the old Fenwick department store building in the city centre (pictured above), to include a combination of flexible workspace, retail, leisure and residential facilities in a vibrant mixed-use building.
I believe that it is precisely these types of collective offerings that will not only provide a return on council investment, but will also serve to incentivise economic activity at the heart of a local area’s commercial centre.
It’s an exciting prospect for the rest of 2020.
Will Kinnear is director at GKRE