Cheltenham Borough Council
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Agenda item

Member Questions

These must be received no later than 12 noon on Thursday 23 July 2020.

 

**Questions must relate directly to the business of this meeting**

 

Minutes:

1.

Question from Councillor Matt Babbage to Cabinet Member Finance, Councillor Rowena Hay

 

Please could you provide an updated summary of the council’s investment property portfolio, including breakdown by property type and industry/commercial sector.

 

Response from Cabinet Member 

 

Thank you for your very appropriate questions during this time which formed part of a useful discussion at the Audit, Compliance and Governance Committee last week.

 

I trust that the responses will help reduce any concerns Members may have but as I am sure everyone is aware, these are very uncertain times.

 

Here is the breakdown of our ‘investment’ portfolio:

 

General Fund

Address

Property type

Further simplification of property type

75 Priors Road

Takeaway/ restaurant

 

Food and beverage

77 Priors Road

Takeaway

 

Food and beverage

79 Priors Road

Hair dressers

 

Retail

Regent Arcade - CBC Lease (Freehold - Land)

Retail (Leasehold)

 

Leasehold

Cheltenham Enterprise Centre (multi let units)

Industrial Park

 

Industrial Park

211 High Street

Retail

 

Retail

Sainsbury’s, Prior Road

Supermarket

 

Retail

53-57 Rodney Road (multi let unit)

Office

 

Office

Ellenborough House (multi let units)

Office

 

Office

Delta Place aka 127 Bath Road

Office

 

Office

 

Overview of the General Fund Investment portfolio: 2 Food and Beverage, 3 Retail, 1 Leasehold, 1 Industrial Park (this comprises 4 occupied units, and a further 3 units are nearing completion), and 3 offices.

 

Investment HRA

Address

Property type

Further simplification of property type

1 Rowanfield Exchange

Dry Cleaners

 

Retail

6 Rowanfield Exchange

Betting Shop

 

Retail

11 Rowanfield Exchange

Cash for clothes

 

Retail

12 Rowanfield Exchange

Community use

 

Community use

18/19 Rowanfield Exchange

Supermarket

 

Retail

24 Rowanfield Exchange

Takeaway

 

Food and beverage

52 Windermere Road

Pharmacy

 

Retail

93 Tewkesbury Road

Post Office

 

 

Retail

94 Tewkesbury Road

Takeaway

 

Food and beverage

95 Tewkesbury Road

Off Licence

 

Retail

96/97 Tewkesbury Road

Betting Shop

 

 

Retail

8 & 10 Hesters Way Road

Supermarket

 

Retail

16-18 Hesters Way Road

Community use

 

Community use

3/4/5 Lynworth Exchange

Supermarket

 

Retail

19 Lynworth Exchange

Beauty Salon

 

Retail

20 Lynworth Exchange

Takeaway

 

Food and beverage

21 Lynworth Exchange

Hair dressers

 

Retail

34 Grasmere Road, Hatherley

Takeaway

 

Food and beverage

35 Grasmere Road, Hatherley

Dental surgery

 

Health Service

266 High Street

Tanning salon

 

Retail

272/282 High Street (freehold land)

Retail

 

Retail

Overview of the HRA investment portfolio: 4 Food and Beverage, 14 Retail, 2 Community Use, and 1 Health Service.

 

HRA properties are mainly small units forming parts of parades in the heart of residential areas (not town centre). Town Centre units are considered prime retail, town centre fringes are considered to be secondary units, therefore these units would be considered as tertiary units.

 

What is evident from even a quick glance is that we have an extremely diverse investment portfolio.

 

2.

Question from Councillor Matt Babbage to the Cabinet Member Finance, Councillor Rowena Hay

 

What assessment has been made of the risks to and valuations of the council's investment property portfolio?

 

Response from Cabinet Member

 

The Councils surveyors who are responsible for the Asset Valuations and act on behalf of the Council as Portfolio advisors have been working very closely with the finance team in regards to the reporting of Asset Valuations in light of COVID 19. We have been in communication and have been following guidance issued by both CIPFA (Chartered Institute of Public Finance) and the RICS (Royal Institution of Chartered Surveyors) in terms of reporting and tracking risks to the values of the Councils investment portfolio. It is generally accepted that we are currently in a period of ‘Valuation Uncertainty’ and until markets start to act more normally, this will remain the case in the short term. Values are linked to income, so in order to assess the risk we continue to track and monitor incomes, not just within our portfolio but in the Cheltenham’s commercial market place.

 

We are acutely aware of the positions of other Councils and some of the difficulties they are being faced with, but we are not in the same boat as many Councils. The surveyors within the team have been in constant touch with local Agents in the Cheltenham commercial market place and tracking, as much as possible fluctuations and changes. For example one Agent reported that some of his Landlords were receiving less than 10% of their retail rental income in June 2020. Another agent reported that the majority of their Landlords with commercial portfolios were lucky to receive rents at greater volume than 30% of their normal income, during April, May and June 2020. All agents agree that Industrial is the strongest commercial market and is continuing to show signs of growth and secure income streams throughout the COVID shutdown and continues to do so. All agents have seen an increase in Landlords seeking advice in terms of disposals and redevelopment of typical commercial (mainly prime retail) premises. The residential market remains strong and the Agents assume that many retail (and possibly some office) buildings will look to convert to mixed use, to protect the Landlords investment value.

 

Traditionally in retail markets Primary Retail Units have been considered the most desirable in terms of locality and income. Post COVID lockdown it is generally recognised that this may no longer be the case, and the most secure retail units in terms of income generation and value will be the tertiary units. As flagged in the answer to question one, the majority of the HRA investment portfolio is tertiary retail units. In fact the Council only really has one unit that could be considered as a Primary Retail Unit.

 

The Office market is the least certain in terms of which way it is heading. There are still new leases being completed in terms of our own portfolio and in the market place, but enquiries have slowed and generally vacant office space is being considered more difficult to let. What is clear is that this market place may take a little longer to settle whilst companies and teams start to settle into a new norm.

 

So how does all this relate to Cheltenham Borough Council? Our investment income during COVID has dropped by about ¼, however the majority of this will still be paid to the Council at a later date as the rent has only been deferred not gifted. The completion of the units at Enterprise Way has been delayed by COVID and therefore the additional income stream that was due to be generated from these units will commence from 1st February 2021 by way of an agreed pre-let. This will result in a ‘new income stream’. What all of this tells us in relation to the Asset Valuations is that any impact to the value to the Assets should not be greater than 20% decrease (as the Assets currently not paying rent will resume), more likely around 10%, this is much, much better than for other Councils and the Cheltenham market place. We continue to actively engage with our own tenants and monitor for signs of risk to our income streams and actively work with our tenants to help to limit risk. We have a fairly robust portfolio and its diverse nature has help shield us somewhat to the more common market trends. We are actively seeking more income generating opportunities by exploring various options that move away from traditional market norms and this will also help secure and hopefully stabilise our portfolio in terms of its value. The values of our Investment Portfolio (indeed our entire portfolio) are under constant review and we continue to track the market and market trends for signs of danger and risk, to try to ensure we remain on the front foot, when the market place is more certain, reporting will be more conclusive and values less uncertain.

 

 

 

Supporting documents: