Mark Whitehead 20 August 2018

Shopping centres: buyer beware

Shopping centres: buyer beware image

The latest figures showing how much councils are investing in shopping centres are staggering.

UK local authorities, according to global investment advisers BNP Paribas, have forked out more than £324.6m on shopping malls in the first half of this year alone - more than the previous highest annual figure for the whole of 2016.

It brings the total invested in the sector since 2009 to more than £800m. Councils, it seems, are on a spending spree. They just can't get enough of shopping centres, part of a bigger picture of massive investment in commercial assts.

It may seem surprising when local government faces an estimated £5.8bn funding gap by 2020, that while several councils are planning to reduce services to the bare legal minimum, others are dishing out millions in the commercial property market.

The case in favour of the strategy is twofold. First, it means the councils have control of important assets in their town centres so that they can put regeneration policies in place. They can mix council facilities - libraries, drop-in centres, nurseries, perhaps - with the shops that people want to use. So the shops benefit with extra footfall, the council interacts more with the community and town centres become more vibrant, attracting further investment. Everyone benefits.

The second argument is that the investment will create income from retailers renting space in the shopping centres, helping mitigate the effects of big cuts in government funding. In the case of the most recent deal, North Somerset Council is banking on making about £1m a year from its newly-acquired shopping centre in Weston-super-Mare which it can use to maintain or improve its services for the community.

However, there are risks. The retail sector is highly competitive and faces its own challenges in the current harsh economic climate. The councils involved have all no doubt sought expert advice, but some wonder whether they have necessarily achieved the best deal when property companies are unloading shopping centres and getting out of the sector.

Further, there is nothing to stop retailers demanding rent reductions once the deal is done - and by then the councils, as proud owners of assets that no-one else wants to buy, will be in no position to refuse. Retailers may then walk away leaving vacant premises.

In any case, projected income from shopping centres is impossible to predict. Huge amounts of money pouring in from rentals is an attractive proposition, but in a competitive market place it is not guaranteed.

Importantly, the twin objectives - regenerating town centres and creating income - appear to be potentially in conflict. If a council's finances are squeezed, arguments in favour of spending money improving the local shopping centre may be compromised. So keeping it up to date and in good condition may fall by the wayside, leading to a downward spiral of neglect. Alternatively the council may find it is forced to pay for the management and upkeep of the facilities at the expense of investing in public services.

Providing public services and making money in the private sector are very different animals. As a commentator remarked recently of a council's multi-million pound purchase of town-centre office space, it had in effect become 'a property company with a sideline in providing local government services'.

Concern over the massive investments being made in the commercial property market reached Whitehall when communities secretary Sajid Javid issued new guidelines earlier this year intended to create more transparency about the investment risks councils were taking on.

But there were no new limits on how much they could spend. The guidance simply said they 'must not borrow more than or in advance of their needs purely in order to profit from the investment of the extra sums borrowed.' So as long as they could show they were at least in part motivated by a wish to improve the town centre, they could proceed as before - including buying assets outside of their geographical area.

Councils have long been involved in ownership of all kinds of assets for a variety of reasons and there are good arguments in favour of them being able to do so.

But when finances are under massive pressure the benefits have to be weighed against the risks and as has been pointed out, a council's prime responsibility is to provide public services, not to speculate in property investment.

Finance experts are understandably jittery. CIPFA has stressed that councils must have the commercial skills to 'evaluate, communicate and manage the risk.'

As a senior local government speaker at a recent conference warned, it could all end in tears.

Councils are now major investors in shopping centres and other assets in the commercial market. The fear is that if the investment fails, council tax payers will pick up the tab and public services will bear the brunt in years to come.

Read our news story on these figures here.

Highways jobs

Senior Traffic Engineer

East Riding of Yorkshire Council
£32,029 - £34,788 per annum
Currently seeking an enthusiastic and experienced individual to manage our Traffic Team. East Riding of Yorkshire
Recuriter: East Riding of Yorkshire Council

Chief Executive

Norwich City Council
Competitive Salary
Could you lead an organisation with a £120m turnover? Norwich, Norfolk
Recuriter: Norwich City Council

Lifeguard

Chelmsford City Council
Grade 3 - Starting at £17,931 per anum and rising to £19,131
Riverside Leisure centre has now opened and its new exciting 25 metre 10 lane pool with Learner Pool, Splash Zone and Flume needs you to help us ma... Chelmsford, Essex
Recuriter: Chelmsford City Council

Technician

Derbyshire County Council
£22,628 - £24,455 per annum
Two posts have become available in the Council's Highways Development Control Section Derbyshire
Recuriter: Derbyshire County Council

Business Systems Support Officer

South Holland District Council
£21,166 - £24,799
Starting salary
Recuriter: South Holland District Council

Local Government News

Latest issue - Local Goverrnemnt News

This issue of Local Government News explores how councils can tackle modern slavery and trafficking in their supply chains, finds out more about Cambridge's first cohousing scheme and the launch of a new project to build a shared service pattern library for local government.

This issue also contains a special focus on children's services and how councils are protecting children following local safeguarding children boards being abolished.

Register for your free magazine