Spelthorne Borough Council has picked Knight Frank to oversee a major sale of commercial property assets.
The local authority in Surrey splashed circa £1.077 billion on commercial property over the last decade, as it joined other UK councils in investing after rules on council borrowing were relaxed in 2016. Between 2016 and 2019 local authorities spent more than £6 billion on commercial properties, inside and outside their districts, during that period, according to CoStar data.
Spelthorne has said in council papers that it will carry out a "full" rationalisation programme for its property portfolio, with disposals of the entire portfolio carried out over the next 10 years.
The portfolio is almost entirely focused on offices, notably close to Heathrow Airport. According to Spelthorne's website it comprises 11 large assets with a value of £776 million, though these values date to 2023.
The largest assets in the portfolio include BP's circa 600,000-square-foot office campus in Sunbury, which it announced it is leaving this week after committing to a new headquarters at Landsec's Timber Square in Bankside. Spelthorne bought it for around £360 million and a 4.25% yield in 2016. Other large assets include 12 Hammersmith Grove in Hammersmith, which it bought for £170 million in 2018, the Charter Building in Uxbridge and the Thames Tower in Reading.
In a statement this week about the BP site, Spelthorne council said: "Spelthorne Borough Council owns the BP Sunbury headquarters site, which is leased to BP as part of the Council’s commercial property portfolio and therefore there are no immediate concerns for the Council’s financial position.
"BP still has time remaining on the two leases which apply to the site, including the main site lease which has until 2036. Under the terms of these agreements, BP will remain responsible for all rental and lease commitments.
"The Council will now work closely with BP, their representatives and external advisors to explore future opportunities for the site."
As with many councils across the UK, Spelthorne began investing in commercial property to generate long-term income to offset reductions in their funding. The investments were enabled by ultra-low interest rates on long-term loans from the Treasury's Public Works Loan Board.
The government ordered a review in 2020 into the investment splurge, which found between 2016-17 and 2018-19, local authorities bought an estimated £6.6 billion of commercial property. The review concluded this rise of “debt-for-yield” activity had led to Public Works Loan Board funding being used for purposes other than those originally intended and the government ended access to PWLB funding for councils that intended to buy commercial assets to generate income.
Concerns had grown particularly around expenditure on properties outside local authorities’ own areas, with 21% of all acquisitions by value made outside their home regions, the NAO reported in a major 2020 review which used CoStar data. Another area of concern was investment in struggling and complex retail centres.
Knight Frank declined to comment.