Agenda item

Commercial Portfolio Update

Report of Councillor Paul Hewett, Executive Member for Property & Projects.

Minutes:

Councillor Hewett introduced the report stating that the management of the Commercial Property portfolio remained an essential part of the activities as a Council which enabled businesses and residents to thrive. Over the last five years assets had generated around £3,000,000 in return per year which had enabled investment in other projects and avoided a higher increase in council tax for Breckland residents. He continued to say the Council had adopted a proactive approach to managing the £45,000,000 property portfolio. He explained that the last year had been tough both on the portfolio and results, and especially so for tenants in the retail and hospitality and leisure service sectors.

 

Councillor Eagle thanked the team for an excellent and comprehensive report and asked if the Council were looking at expanding into small office space, particularly in the market towns which, he felt, would increase footfall and attract people to live and work in Norfolk.

 

The Assistant Director for Property and Projects, Ralph Burton, confirmed it would be part of Breckland Council’s investment strategy and were always looking at the performance of the portfolio and any disposals or acquisitions and seek opportunities to expand businesses in Breckland.

 

Councillor Jermy asked about the occupancy level of the Business Centre in Thetford which remained consistent with a letting potential of 84% and asked if the remaining 16% was within the same area or would it be considered an unlettable area and therefore should not be included in the target.

 

The Assistant Director for Property and Projects explained the 16% was not one consistent space, and that it varied with the units around the building that were not let at different times. He stated that the team were constantly looking at whether the layout of the space was configured in the right way with the right layout and that there was the flexibility to change the layout provided the capital investment created a positive return.

 

Councillor Wickerson noted that in terms of the vacant properties, 2% were currently vacant and asked if this was a particular type of property that was causing an issue. The Assistant Director for Property and Projects explained this was mainly the office market, which, due to the last year with Covid19 had proved difficult to let and that they had needed to look at different ways to create incentives to get the units let within the office market, which was currently the biggest challenge.

 

Councillor Kiddle-Morris was pleased to note the increase in lets in the Business Centres both in Dereham and Thetford and was pleased to note the increase in the letting figures, particularly in Dereham and asked why Thetford was less occupied yet rendered more rent. The Assistant Director for Property and Projects explained that it came down to the valuation parameters of the geographical locations at the time of the lettings.

 

Councillor Eagle asked if Breckland Council were flexible with any restrictive covenants on lettable units. The Assistant Director for Property and Projects explained that if units were next to other units within a courtyard, for example, they had a duty to consider the impact of use with other occupants within that area. However generally, particularly within the industrial sector, Breckland would not place restrictions, but the client would have to have the relevant permission for any statutory change of use in terms of planning and provided they had the planning consent from Breckland Council they would work together with the tenants and would be flexible to achieve this.

 

The Chairman asked if Breckland Council had considered in investing in areas outside of the district or considered borrowing to invest in commercial property either within or outside of the district. The Assistant Director for Property and Projects explained this was challenging, and as yet had not considered borrowing to invest and was not permitted against the PWLB rules but as the portfolio progressed Breckland Council would look wider than just commercial property and look at yields and opportunities available to increase returns to provide more opportunities for Breckland Council.

 

Councillor Birt said Breckland Council needed to look carefully at the balance of investing outside of the Breckland area and within it. If Breckland Council were investing in businesses within the area it would bring returns for business rates and possible employment within the area.

 

Councillor Eagle asked if the purchase of agricultural land had been considered with small pockets of land which could have massive benefits for Breckland Council on its environmental objectives.

 

Councillor Hewett said there were always investment opportunities and as a Council had not only commercial considerations but also social and community obligations and would always look at the best yield on the current market. The Assistant Director Property and Projects said the goal was to make the best returns possible and always look at optimum returns, the team was currently focused on Commercial Property as they created higher yields than other property sectors and that was where the core skills of the team lay but that no investment was ruled out and opportunities would be considered.

 

Councillor Birt asked how the 6% yield target was decided and why. The Assistant Director Property and Projects explained that each year the yield analysis and the portfolio would be looked at to see how it performed against the market and adjusted the target according to the benchmark across the Country which was currently at an average of 5%. The yield would be measured after expenditure, overhead and costs and ensure the team were stretching themselves and getting the best from the portfolio.

 

Councillor Jermy asked about Energy Performance Certificates (EPC) and environmental sustainability, and if Breckland Council were actively encouraging tenants to be more sustainable. The Assistant Director Property and Projects explained that approximately 18 months ago the Government had introduced minimum energy performance standards to ensure that no property could be let or sold without an EPC that had reached that minimum standard. The Government were looking to increase that standard and Breckland Council were currently reviewing all of the properties to ensure they were as energy efficient as possible and up to the standard to achieve the EPC.

 

Councillor Morton noted that within the main portfolio the occupancy rate was up on the previous year, yet the outturn of income was 15% lower and asked if this was due to Covid19 and if it was likely that it would achieve an increase next year. The Assistant Director Property and Projects confirmed they had tried to stabilise the portfolio as much as possible throughout Covid19 to sustain businesses and take a long term approach and look at different arrangements and deferment schemes, most of the tenants had now come out of that and were starting to pay back but he suspected that the commercial market still had a long way to go until the market recovered and that Breckland Council needed to be agile enough to respond to the market and sustain current income and work to improve the rental income KPI.

 

Members of the Commission noted the report.

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