Council's £85m investment programme paying off despite pandemic

The Conservative-run council has borrowed millions through a low-interest government loan scheme and used the money to buy buildings such as warehouses and shops.

It then rents those buildings out and uses the profits to fund key council services.

Wokingham Borough Council has already invested £85 million and expects a net return of around £2.12 million (2.5 per cent) every year. It hopes to invest a further £115 million in the coming years.

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Concerns have been raised about this investment programme, as the value of some of the property it has bought could drop significantly during the pandemic.

The Office for Budget Responsibility predicts that the price of offices and commercial buildings will fall by nearly 14 per cent this year.

Other councils have lost considerable amounts of money by making large property investments. Shropshire County Council bought three shopping centres for £52 million in January 2018 and earlier this year those centres were valued at just under £20 million.

However, councillor John Kaiser, executive member for finance, is confident that Wokingham Borough Council’s investments will continue to pay off during the pandemic.

'We’ve been very careful about what we’ve acquired'

He said the council does not buy these buildings to sell them for a profit, so a drop in value is not a major concern, and most of its tenants have been making rent payments throughout the pandemic.

“If you look at our portfolio, it’s mainly supermarkets, which have done extremely well during Covid,” he said.

“I expect the value of office buildings will probably reduce by that amount (14per cent), but I can’t see supermarket property reduce by that much.

“If you look at Tesco, they’ve just announced record profits.”

He also said the only property the council has bought which is outside Wokingham is a warehouse, which can be used by supermarkets and other retailers.

“We’ve been very careful about what we’ve acquired.

“With everything we’ve got in the borough, we’ve always looked at it and thought that if anything goes wrong we can turn it into flats.”

At a recent meeting, several councillors asked the council whether it was concerned about businesses that occupy the council-owned buildings failing to pay their rent.

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But according to a recent report, around 75 per cent of the council’s annual income from investments (£3.3 million) comes from ‘institutional calibre tenants’, such as Waitrose and Tesco, that have not struggled during the pandemic and can pay their rent in full.

Another £1.2 million comes from investments seen as higher risk, but the council says “a relatively small” number of their tenants have fallen behind on their rent and asked for support from the council.

However, the council predicts that £186,862 of the rental income it is owed will be irrecoverable in 2020/21 and £93,103 is currently at risk, due to the impact of the pandemic.

“We’re moving away from commercial property now because of Covid,” said Cllr Kaiser.

“We’re looking at buying and building more houses.

“It means we can deliver affordable homes for people who live in the borough and get a return.

“But we don’t make anything like the return a normal housing company looks for. They look for around 15 per cent, but we look for a return of about 4 to 5 per cent.”