Local government: commercial property investments

Since the mid-2010s, some local authorities have sought to build up new portfolios of property in order, amongst other aims, to generate a profit from commercial lettings in order to increase their revenue budgets.

This briefing paper sets out the process and the legal background for local authority commercial property investment, notes recent media commentary, and presents some reported examples of large-scale commercial property activity. It notes some of the potential risks of this activity. It also notes some of the commentary, both positive and negative, on these initiatives from the sector and other actors. It also includes some details of previous episodes of local government financial innovations that are often quoted as ‘cautionary tales’ in the current context. These are the Hammersmith ‘interest rate swaps’ episode in the late 1980s; local authority investments in Icelandic banks in the late 2000s; and recent controversy over lender option, borrower option (LOBO) loans.

The bulk of the briefing paper covers developments in England only. Additional information on local authority borrowing and capital finance management can be found in the Library briefing paper Local government in England: capital finance.