The Treasury has attempted to guide local authorities away from a strategy of buying struggling retail properties over fears that the investments could force councils into bankruptcy.
The rate at which local councils are able to borrow to invest was raised by one percentage point last week, as concerns mount over borrowing levels.
Rates on loans from the Public Works Loan Board have increased due to concerns over unsustainable borrowing, the Sunday Telegraph reported.
Pantheon Macro economist Samuel Tombs told the Telegraph that the Treasury’s intervention has seen borrowing costs “skyrocket” and has jeopardised “many capital projects that local authorities had planned”.
Councils have reportedly bought one in five shopping centres sold since 2016, as property developers exit the struggling sector and local authorities seek new revenue streams following cuts to central government funding.
Last week, retail landlord Hammerson offloaded St Oswald’s retail park in Gloucester to the local council for £54m as it continued with its property disposal programme. Mole Valley district council in Surrey bought an Asda site in South Wales for £11.5m.
The Local Government Chronicle reported that the amount spent by councils in England on investment properties increased from £76.4m in 2014/15 to £1.8bn in 2017/18.
Property giants, including British Land, Intu and Hammerson, have seen their portfolio valuations fall as retailers shutter stores and seek rent reductions, often using controversial company voluntary arrangements (CVAs) to restructure.
High street stalwarts such as Sir Philip Green’s Arcadia, which owns Topshop, Topman and Dorothy Perkins, and Monsoon Accessorize have recently implemented CVAs to slim down their store portfolios and secure rent cuts.
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