Somerset Council has revealed losses exceeding £91 million on its inherited commercial property investments, with further declines anticipated as the council continues to divest assets. Since its establishment in April 2023, the council has been actively selling surplus land and commercial properties originally acquired by the former district councils.
By government mandate, proceeds from these sales can temporarily fund front-line services—a relaxation of usual rules that will expire after April 2027.
Approximately 60% of the council’s asset portfolio has already been sold, generating over £125 million—about 7% above the original valuations. However, when factoring in the cost of borrowing and operational expenses, the council has faced significant overall losses.
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Background investments were made by the four former district councils—Mendip, Sedgemoor, Somerset West & Taunton, and South Somerset—based on guidance from the Ministry of Housing, Communities and Local Government (MHCLG). The goal was to offset cuts in central government funding through rental income, funded entirely by borrowing from the Public Works Loans Board (PWLB).
By April 2023, the districts owned 48 commercial properties valued at over £310 million, including retail units like Marks & Spencer and Wilko in Yeovil, industrial units such as part of Commerce Park in Frome, and business parks including Street Business Park. Only 25% of these properties were located within Somerset itself.
The financial pressures intensified following the pandemic and increased demand for services. In response, central government encouraged Somerset Council to sell these assets gradually to avoid fire sales or undervaluation.
As of early June 2024, 28 properties have been sold, raising more than £125 million. Additional sales are pending, with five offerings valued collectively above £24 million. Buyers range from small property firms and wealthy private investors to a large French investment company benefiting from UK tax incentives.
Despite some sales exceeding original valuations, overall investment value has dropped significantly. A recent report estimated the portfolio’s worth at £222.4 million as of March 2024, down nearly £79 million from its initial value. Combined with asset sales below purchase price and value reductions on remaining properties, total losses amount to roughly £91.85 million.
Profitability varies by individual properties. Only six sales closed at a profit based on sale price alone, with the largest gain of nearly £1.5 million from the B&Q store in Glastonbury. The biggest loss was on the Steelite factory in Stoke-on-Trent, sold for £14.4 million after a £21 million purchase, resulting in a £6.6 million deficit.
Incorporating rental income into the analysis paints a more balanced picture. When accounting for revenues generated before sale, 21 of the 28 properties delivered net profits. The North Shields Retail Park near Newcastle-upon-Tyne stands out, generating a net profit of close to £4.4 million despite marginal value drops.
A council spokesperson emphasized, “The properties were invested in to generate an income, so the return on initial investment should be taken into account. The sale returns plus rental income of these sales total a positive return of £17.19 million.”
Looking ahead, the council must repay the borrowing incurred to fund these purchases, a key factor contributing to overall debt exceeding £1 billion. This debt is projected to decline in the next five years despite new borrowing for council housing projects.
From April 2027 onward, the council will no longer be permitted to use asset sale proceeds for front-line service funding unless granted a capitalisation directive by the government for a fourth consecutive year.