South Somerset District Council announces investment in business park to help secure vital services

10 July 2019 | District

South Somerset District Council is continuing to make investments that will help fund vital services and new projects.

The latest is a business park in Christchurch which was secured for £7.05M, considerably below the market value.

It has been added to SSDC’s growing portfolio as part of its commercial strategy which is helping to mitigate a reduction in central Government funding and ensure SSDC generates income to protect the wide range of services our communities receive.

How does the council pay for these deals?

The Council uses a range of funding sources including investments utilising its reserves (sums of money that are held so that there is a financial cushion to meet sudden unexpected costs) and internal borrowing, a process through which SSDC can borrow from itself and charging itself interest.

This means that money that was previously in bank accounts is generating a higher rate of return with the proceeds used to protect services and deliver important projects in South Somerset. It does not involve investing money that would have been spent on services.

And in the highly unlikely event that we do need to access to funding quickly in an unplanned way, our careful approach to investment means we can still do this.

Details of the deal

The Council worked with Lambert Smith Hampton’s Southampton based investment team and Shoosmiths LLP, the Lawyer’s National Firm of the Year 2019, to acquire the 68,327 sq ft D1 Christchurch Business Park for £7,050,000 reflecting a net initial yield of 7.07%.

The Dorset property is currently let at a rent of £531,299 to Kondor Limited, which is a marketing and distribution partner of Samsung. It was identified by the council as an attractive investment with potential for capital growth due to the supply and demand imbalance in the Solent industrial market. The purchase reflects £103 per square foot capital value at a point where other prime investments in the same market are achieving up to £130 per square foot.

Cllr John Clark, the Council’s Portfolio Holder for economic development including our commercial strategy said: “This property meets our aim of acquiring well located property with established tenants, where we can add value. To get such a strong investment in such a tough industrial market at a yield in excess of 7% is very pleasing.

“We continue to be proud to be investing in order to maximise income to the council.”

Why is South Somerset District Council becoming more commercial?

The Council is currently operating in a complex financial climate where it needs to deliver savings rising to £6 million per year until 2022. This is in addition to having to cut its costs substantially since 2010.

SSDC has sustained a 70 per cent reduction in its Government grant funding since 2010 and further reductions are likely in the future whilst demand for and costs of many services continues to rise. It became clear that SSDC needed to make the most out of its assets and look for new opportunities which could generate income to protect the wide range of services our communities receive and create opportunities to fund new projects.

It has seen the Commercial Services and Income Generation team given an ongoing annual income target of £2m for commercial investment income and great progress is being made.

This is about making prudent financial decisions which will create significant income to get the best results for South Somerset but still, where possible, supporting the local economy.

In the future, we will have countered the loss of grant funding from Central Government though sensible investment and we will continue to deliver vital services, parks and open spaces as well as exploring new opportunities to make South Somerset an outstanding place to live, play and work.

How does the council decide on where it invests?

Every decision that is made is being rigorously tested and checked. The Commercial Property Team is working to ensure that SSDC does not overpay for property due to the lack of supply, and is not exposed to undue risk, for example within the retail sector, where significant changes are currently occurring nationally.

A huge and diverse range of opportunities have been considered and rejected in the past year from a car showroom in Newcastle to an industrial estate in Poole.

Reasons for rejection can include the asking price not matching our valuation, unacceptable risk to income, non-compliance with our commercial aims and objectives, and over-exposure to a particular market.

SSDC is investing in a diverse range of locations and asset types to ensure that it spreads any risks attached to investments which reflects sound investment practice.

This includes assessing whether an investment outside the district will deliver a better rate of return for our communities than a similar opportunity in South Somerset.