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Council spent £20m on an office and industrial units before coronavirus hit

PUBLISHED: 08:20 29 May 2020 | UPDATED: 11:51 29 May 2020

Leader of Norwich City Council Alan Waters defended the decision to spend more than £21m on commercial property shortly before coronavirus hit the UK. Picture: Google Maps/Ian Burt

Leader of Norwich City Council Alan Waters defended the decision to spend more than £21m on commercial property shortly before coronavirus hit the UK. Picture: Google Maps/Ian Burt

Google Maps/Ian Burt

City Hall chiefs splashed out more than £20m on an office block and industrial units before the pandemic hit commercial property prices.

Lawrence House, Norwich, which the city council has bought for almost £7m. Image: lawrencehouse-norwich.co.ukLawrence House, Norwich, which the city council has bought for almost £7m. Image: lawrencehouse-norwich.co.uk

Coronavirus has seen the value of commercial property and rents plummet and Norwich City Council has offered tenants a three-month rent deferral.

It said the decision to invest another £21m in commercial property was made before coronavirus reached the UK.

In February it spent £14.5m on three industrial units at an estate called Stafford Park in Telford. The units are let and should bring in the council around £1m a year in rent.

Then in March it spent another £6.9m on Lawrence House on St Andrews Hill in the city centre. Much of it is rented, but according to its website, thousands of feet of office space are available.

It has spent £70m since 2017 on commercial property, including £6.2m on a Travelodge. The hotel chain has asked for rent cuts to avoid administration during the pandemic.

The council said its “prudent” investments helped fill the gap left by government cuts.

The rental income funds one in every £7 it spends on public services and it gets a return of almost 3pc a year.

But its plans to spend another £25m this year on commercial property have been thrown into doubt by the Treasury.

Lawrence House, Norwich, was bought by the city council as the coronavirus pandemic hit. Photo: Google MapsLawrence House, Norwich, was bought by the city council as the coronavirus pandemic hit. Photo: Google Maps

It hoped to borrow cheap money from the Treasury to snap up its next purchases.

But the Treasury wants to ban councils borrowing money, which is meant to be invested in local infrastructure projects, for commercial property.

It said it wants to see an end to “speculative commercial investments”, warning it puts taxpayers at risk.

A council spokesman said it would review its policy.

Norwich City Council's Labour leader Alan Waters said the council was buying commercial property to generate income and make up for government cuts. Picture: Ian BurtNorwich City Council's Labour leader Alan Waters said the council was buying commercial property to generate income and make up for government cuts. Picture: Ian Burt

Leader Alan Waters said: “The government can change their minds and stop councils investing in commercial property but they will need to deliver an effective plan B.”

Mr Waters said the council was following encouragement from the government to be more commercial and plug the “brutal” 60pc cuts to council funding since 2010.

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Councillor Ben Price, from the opposition Green Party, accused the council of not having its finger on the pulse.

“I have warned the council repeatedly that it should have radically changed its commercial investment programme,” he said.

“The council should invest in renewable energy or technologies, which will deliver the sought-after income, whilst making a positive impact on the city and the future of this planet.”

Green Party leader Martin Schmierer added: “In the last recession, the value of property and income from rents both fell, so it was clear that these were high-risk investments, even before the current pandemic.

“Yet the Labour-run council insisted on borrowing mind-boggling sums and rushing through investments which may now come back to hit them.”

Norwich City Council has bought units on Stafford Park industrial estate in Telford for £14.5m. Image: Google MapsNorwich City Council has bought units on Stafford Park industrial estate in Telford for £14.5m. Image: Google Maps

•The £6.6 billion spending spree

MPs warned as early as 2016 about the risks of councils putting huge amounts of public cash into commercial property, particularly with high streets struggling.

“If commercial decisions go wrong, council taxpayers will end up footing the bill and other services will be under threat,” they said.

But that warning fell on deaf ears at many councils.

They spent £6.6 billion from 2016 to 2019, the National Audit Office (NAO) found, on investments including shopping malls and retail parks.

In February the NAO again warned of the risks to public services if a recession led to fall in the value of investments.

“The benefits... must be considered against the potential risks to authorities,” they said.

That helped spark the Treasury’s consultation on council’s borrowing public money for these purchases.

They said these investments “diverts money from core services” and risks distorting property markets.

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