By Tom Leahy on May 26th, 2017
The sale by Aviva Investors of a 50% share in a research park in southeast England for £45 million ($58.3 million) would not normally garner much attention. However, the transaction, which completed earlier this month, demonstrates the growing appetite for commercial real estate investments from an unlikely buyer group: U.K. councils and local authorities.
The acquisition by Uttlesford Council in Essex of the share in Chesterford Research Park is one of a string of recent transactions involving local government buyers. RCA data shows commercial real estate investment by this buyer group has leaped in the last two years and in the 12 months to the end of March local government buyers deployed capital totaling £1.75 billion – six times the long-term average volume.
This raise two key questions: what are these investors buying and why are they buying now?
In terms of the type of assets, there is a clear bias towards the three main property sectors – office, retail and industrial. The location of these assets is very much dependent on the councils who have made the investment, as they are buying property that sits on their own turf. For example, Barnsley Borough Council recently invested £70 million to fund the construction of a new shopping center in the town, and Surrey Heath Borough Council has bought two retail assets and one industrial asset in Camberley, where it is headquartered.
While the attraction of the returns and the shoring up of their provision of local services is clear, this investment trend by local councils has raised some eyebrows. Concerns center on the perceived lack of expertise of councils in this specialized arena, which could lead to costly errors that have consequences for taxpayers.
For now though, with almost £200 million spent already in the second quarter, there seems to be no halt to this spending spree.