Photo: Pixabay, CC0
“Poor and volatile” market conditions have caused the value of Elmbridge Borough Council’s property investment portfolio to deplete over two consecutive financial years.
As of March 2024, the authority had an investment portfolio of 16 properties, containing 69 commercial leases and seven vacant units.
According to a council document, which is to be discussed at a Cabinet meeting on 3 July, Elmbridge’s investment portfolio in March 2024 was valued at £78.97m compared to £91.57m in 2023, equating to a 13.75% decrease in value over the last financial year.
The document explained that a proportion of this decrease has resulted from the reclassification of residential stock from investment to operational. If this is added back at full market value, the depletion in value is adjusted to 5.16% for 2023/24.
However, Elmbridge council stated that the decrease in the portfolio’s value in the last financial year is a “slight improvement” from 2022/23, with its value depleting by 8.3% within the financial year.
The council explained that the reduction in the portfolio’s value reflects the “ongoing poor market conditions” and “financial pressures” throughout the past few years.
From December 2021, the Bank of England has raised interest rates, holding the base rate at 5.25% since September 2023. Despite this, the Bank has signalled that rate cuts could be coming on 1 August. Alongside interest rate hikes, inflation peaked at 11.1% in October 2022, with it now falling to 2%.
The Cabinet document explained that “risks in the current market are yet to be fully understood”.
“The increased volatility in costs, associated with an unstable political backdrop both at home and abroad, interest rate rises and the attempts to counter inflation, points towards reduced income and continued downward pressure on values in the future,” it said.
As a result of the volatile market conditions and pressures, the document explained that Elmbridge will not seek to purchase any more investment properties this year.
Overall, in the last financial year, Elmbridge council earned £1.56m in net income from the property investment portfolio, according to the Cabinet document.
This comes as other councils have reported that their commercial property portfolios have experienced declining valuations.
In November 2023, West Berkshire considered selling off assets within its commercial portfolio, which was valued at £51.4m in March 2023 compared to a purchase value of £58.6m.
Mid Devon District Council also announced in 2023 that it was to close its wholly-owned property development company as the impacts of Covid-19, rising interest rates and a “challenging” housing market had caused it to deteriorate financially.
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