Somerset Council could have sold investments by Christmas

The council declared a financial emergency in November 2023 and was only able to set a balanced budget in February by agreeing to significant savings, job cuts and the sale of assets – including commercial investments inherited from the previous councils.

As part of its budget, the government provided the council with a capitalisation directive of £36.9m – meaning it could use the proceeds of selling off assets to pay for day-to-day services, something which is not normally permitted.

The council has now confirmed it has sold nearly £32m of its commercial investment and could exceed its target of selling off more than £50m of this portfolio within a couple of months.

The issue was discussed by the council’s property and investments executive sub-committee when it convened in Taunton on October 29.

The previous councils invested a total of £290m in investments, with the individual capital value of the assets ranging from £1.2m to £22.2m.

As of August, the estimated value of the investments had dropped to £265m, or by around five per cent – which officers said was “broadly in line with the slight softening in the market” as a result of higher interest rates.

As of late-October, the council has sold off £31,570,000 of these commercial investments against a target of £50.8m for 2024/25 – with a further £7,775,000 of these investments being currently under offer.

The council is carrying out marketing exercises for a further £16,780,000 of assets, and an additional £12m of investments is being prepared for marketing – bringing the total to £53,023,000.

The council is predicting that it will have exceeded its original sales target of £50.8m by the end of December 2024 – well in advance of its next budget being set in mid-February 2025.

As a result of these sales, the council has seen its real terms annual income (in the form of rent from tenants) drop dramatically down to just over £16.1m – a fall of nearly 14 per cent.

It has also seen the number of vacant units within its investments rise from 3.7 per cent to 8.3 per cent, driven by tenants moving out of offices it rents in Christchurch and part of the Aztec West block in Bristol.

This latter vacancy concerned part of the 700 block of Aztec West and not 600-650 within the same site, which was sold off by the council in August following numerous protests against Elbit Systems UK.

Robert Orrett, the council’s head of commercial investment services, said: “The number of void units is likely to be within five and ten per cent – so if we can get close to five per cent, we’re pretty happy.

“Around 1.3 per cent of tenants have rent arrears of more than 90 days, but our major commercial tenants are pretty good at paying their rents.”

The council has not publicly identified which buildings within the portfolio have been sold or are under offer, citing commercial sensitivity.

Councillor Mandy Chilcott, leader of the Conservative opposition group, said: “If we reach the £50m target and go beyond, at what point will we stop needing to sell these properties to support our budget and will we start to pay down some of the loans?

“We have to remember that behind each of these sales, there will have been a loan that was taken out to purchase them in the first place.”

The council’s purchase of commercial investments was funded by loans from the Public Works Loan Board (PWLB), an arm of the Treasury which allows local authorities to borrow money at a lower interest rate than commercial companies.

Interim chief financial officer Maria Christofi responded: “We have the loans that we have taken out, which sit within our capital financing requirement.

“We wouldn’t repay any loans in advance of their due date, because we would suffer punitive penalties – they would cost us more to repay and refinance, given where we are with interest rates.”

Further updates on the council’s commercial investments are expected to come before the executive committee in the coming months as part of the budget-setting process.