The chief executive of Leeds City Council has revealed plans to scale up its commercial property portfolio by making further investments this year.
Speaking exclusively to The Yorkshire Post at the launch of Deloitte’s latest crane survey in Leeds today, Tom Riordan said he expected the council to make a ‘steady stream’ of investments following its initial foray into the sector with the purchase of Addleshaw Goddard’s new Leeds office, 3 Sovereign Square, for just under £44m last year.
It also bought an 80,000 sq ft shed at Logic Leeds from Muse for an undisclosed fee that is let to Amazon, and is a joint venture owner with Town Centre Securities of the 10-storey Merrion House office block that is currently undergoing a major refurbishment.
Mr Riordan said there are further purchases in the pipeline as the council looks to generate more income through borrowing money at very low rates to buy buildings and taking the rent from occupiers.
“We’ve become much more commercial in how we look at our financial decision-making and we’ve sought partnerships to do that,” he said.
“There will be a steady stream of investments. It’s about saving jobs in the council at the end of the day. If we can do deals that will make money for the council and the tax payer then it means we don’t have to cut as many services.”
Leeds is not unique in adopting this strategy over the last 12 months. According to figures by property agent Savills, last year local authorities nationally invested £1.2bn in commercial real estate to account for 2.76 per cent of the overall UK market, compared with just 0.03 per cent in 2000.
Some local authorities, including Surrey County Council, have been criticised for investing outside their boundaries. But Mr Riordan insisted the council’s money would remain in Leeds. “We won’t be investing outside the city. It’s about investing in the city itself,” he said.
He added: “We are a long term investor that has the interests of the city absolutely at our heart.
“We are having to use all the tools at our disposal to make sure that we make the best of the assets we have got.”
Meanwhile, Leeds is also selling off a number of old council buildings, which it says are ‘no longer fit for purpose’. It plans to move from 14 offices to four in the city centre.
“That strategy is paying off because it’s creating money that we can use to deal with the cuts and reinvest in the city centre in better assets that will give us a better return,” Mr Riordan said.
Mr Riordan said the council chose ‘low risk’ buildings which would give a good return for the taxpayer.
Angela Barnicle, the council’s head of asset management, said that it did not seek out complex deals.
She added that the authority had a ‘very strong’ and experienced property team, although it would seek external advice from the private sector where necessary.
Henrie Westlake, head of north at Knight Frank and agent for the sale of 3 Sovereign Square to the council, said: “There is sometimes confusion, with certain elements suggesting flagrancy by local authorities raising borrowing levels on ‘vanity’ projects. With astute investment this is simply not the case. Property as an asset class offers stability and generates strong income returns. Taking advantage of cheap capital than much of the market to generate income for the region is to be applauded.”
Alistair Russell, director of UK City Commercial, added: “This new strategy is a good thing but property always carries a risk and the council is taking on a risk which is not its core business.”