Posted by Local Government Chronicle on 25th Nov 2019

Not a single council has purchased a shopping centre outside of its own authority area in the last three years, despite "misinformation" in the media to the contrary, new research shared with LGC has found.

Councils in England have spent more than £775m on shopping centres since 2016, buying more this year than ever before according to new data analysed by shopping centre investment managers Ellandi. They claim that 28 shopping centre transactions were made between 2016 and 2019 totalling more than £850m in capital value.

Their data indicates that councils are still very active in the shopping centre market, with nine deals made so far in 2019 compared with seven in 2018 and six each in 2017 and 2016. However, LGC understands that the PWLB rate rise has impacted some authorities' shopping centre purchase plans.

All the deals made since 2016 were for shopping centres in the councils' own boroughs and Ellandi found that the majority of these purchases were made for regeneration purposes, with immediate investment returns “in many cases a secondary consideration”.

Mark Robinson, founder of Ellandi and Revo president said there was a lot of "misinformation" in the media that gave people the impression councils had been "splashing out" on out of borough shopping centre investments.

"This should be debated on the basis of fact, not ‘what a bloke down the golf course told me’," he said. "Local authority investment is a controversial issue, which is often clouded by ill-informed debate.

"However, while councils have not been investing in shopping centres outside of their area, they have not shied away from making investments in other retail estate in other vicinities. For example, in 2017 Surrey CC bought Malvern Shopping Park for £74m in Worcestershire. And last month Redbridge LBC bought Beckton Retail Park in Newham LBC for £46m.

On top of Ellandi's work, separate research by retail property and place making body Revo and Lambert Smith Hampton shows that only 14% of councils' £5.6bn commercial real estate investments have been in shopping centres since 2016.

Mr Robinson told LGC that while retail parks are largely bought by councils for the same reason as office blocks and campuses - "purely for investment purposes" - Ellandi's research suggests that the majority of decisions to purchase shopping centres are "primarily driven by the aim of taking control of a dominant asset in the heart of their borough".

"The motivations for buying shopping centres can be for investment, but they are more driven by a desire to take control and drive change within their boroughs," he said.

On average, Ellandi found that on average council acquisitions were bought 47% below the traded price from the most recent market peak between 2002 and 2008. Where an asset had already been purchased post-crash in 2008 and then sold to a council, the average discount was approximately 25%.

Ellandi found that the greatest discount to peak traded value was when Colony Capital sold Market Gates and Galleries Shopping Centres to Wigan MBC for £7.5m last year. This was 93% below the price Propinvest paid in 2006 of £101m.

Despite the price drops in recent years, Mr Robinson did not suggest that councils were paying a fair price for their purchases. “We are not saying that they have bought for the right or wrong price. Some people would say they have bought for a discount, but not enough of a discount, for example," he said.

“It is fair to say, however, that increasingly local authorities appear to be acquiring assets at a significant discount to previous prices.

”However, there is also evidence of councils paying more than peak prices for their shopping centres. In 2016 Northumberland CC paid £78m for Manor Walks Shopping Centre, which was 1% more than the price paid in 2006 by its previous owners Hammerson. But the price took into consideration an extensive leisure extension Hammerson had carried out in 2013.

Nigel Wilcox, the executive director of the Institute for Economic Development said: "If councils are investing in their capacity to repurpose shopping centres and have a vision of how town centres might look, that's part of the regeneration exercise. But if they are investing in the hope that they can turn around the fortunes of a retail centre and make any sort of return, then that's clearly a very high risk strategy in the current environment."

Recent council shopping centre transactions

In November 2019, Blackpool City Council purchased Houndshill Shopping Centre for £47.6m, which is 55% less than the previous owner, New Frontier, paid in September 2015. The scheme was extended in 2008, having previously traded during the peak market for £65m (or 27% more than the price paid by the council).

Stockton BC have recently purchased both shopping centres in their town; Castlegate Shopping Centre was acquired for £13.5m in July 2019 and Wellington Square was bought for £8m in March 2019. Collectively, these schemes were purchased for 76% less than peak trade. Ellandi told LGC that Stockton has been exploring options ranging from refurbishment and repurposing of Castlegate, through to complete demolition, to reduce the supply of retail space in the town.

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