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Customers shopping in the Wickes DIY store in Gravesham are unlikely to know that they are doing so on a site acquired by the council for £8.5m two years ago.
While it might seem odd, commercial acquisitions have, for many authorities, become a way of balancing the books and raising income in the face of dwindling government grants.
But coronavirus and the two national lockdowns have left many councils contemplating the likelihood of income they expected from property - notably in the retail sector in the form of rents and leases - not matching their forecasts.
And it has for some been a double-whammy: money from other charges, such as parking also dropped.
Add in the number of people working from home rather than the office, the collapse of many high street stores and increasing unemployment and it is not hard to see why some authorities are facing difficulties.
John Burden, the Labour leader of Gravesham council, says there are limited options when it comes to off-setting cuts in government grants:
“Like all local authorities, we have been faced with dwindling government grant allocations over several years, necessitating a more commercial approach to our activities to ensure our income allows us to maintain and improve our provision of essential frontline services for our community.”
He argues the council is getting a better return than it would if it simply held the money in savings accounts with their historically low interest rates - something that ought to satisfy council taxpayers.
Describing the investments as “a key part of our shrewd and prudent financial management” he says the council has minimised the adverse impact of the pandemic.
But in a sign of a more precautionary approach, the council has decided to press the pause button on other property acquisitions.
“This (income) has brought us to a position where our cash reserves are such that the financial impact of Covid-19 is having far less of an effect on this council than it is on our colleagues in other local authorities around the country.”
It is a familiar refrain from council leaders of all political stripes, who bristle at any suggestion they are gambling with taxpayers’ money.
Canterbury City Council has seen its income decline from commercial sources this year, notably the Whitefriars shopping centre.
The council bought the centre for £154m in two phases - acquiring half the centre in 2016 for £79m then completing its purchase for the remainder in 2018 for £75.5m.
While projected income of £8.2m from the centre this year has fallen short by about £4m, some of that had been anticipated because some shops were reaching the end of their leases.
It is bullish about the prospects longer term and expects to make up for this deficit as the economy picks up again. A statement said regeneration and control of a large part of the city was “at the very heart of our decision to buy Whitefriars.”
The statement added: "We have always seen this as a long-term strategic purchase which will inevitably have its ups and downs. Recessions come and go.
"But they are always followed by periods of strong economic growth and prosperity which will benefit the council taxpayer and help pay for vital frontline services.
"It allows us to have a substantial say in Canterbury’s future and enables us to keep the needs of our residents and the district’s businesses front of mind. Having that control is all the more important as the high street, which was already changing, successfully adapts to life after the pandemic.”
This optimism, however, comes against a backdrop of a change in shopping habits and behaviours which has seen more and more people going online during the coronavirus pandemic.
As more business goes online shoppers stay away, there has been a knock-on effect on other sources of income, particularly from parking charges. Canterbury council has forecast a shortfall of nearly £5m this year against an expected income of £9.4m.
For other authorities, commercial investment is not just about raising money but an essential element of wider ambitions to become financially self-sufficient.
'We have always seen this as a long-term strategic purchase which will inevitably have its ups and downs...'
Sevenoaks council has been at the forefront of this approach and lays claim to have been the first in the country to use commercial investment as a way of realising its objective of financial autonomy. Its property portfolio includes the Premier Inn hotel, which opened its doors in 2018.
The council invested around £8million in the hotel, which it now owns outright and leases back to the chain.
This entrepreneurial approach has been adopted enthusiastically by Ashford council, which has similar ambitions to achieve financial self-sufficiency.
The importance of commercial investment was first recognised four years ago when the council realised the government grants it traditionally relied on were set to decline, tapering to a position where it would receive none.
The authority says commercial investment is central to securing financial security and balancing the books. But as important is the focus on driving regeneration and attracting economic investment to the town.
However, it too is facing the challenges posed by the coronavirus crisis and the government's lockdown have had a direct impact on its key asset, the Elwick Place complex.
A recent report setting out how the council fared under the first wave of the flu pandemic described the impact of the enforced closure of shops over three months as “immense” and warned that the council could face “significant pressures” as a result.
The council's most recent acquisition, Elwick Place has had a bumpy ride since opening in 2019.
The leisure complex was branded a “ghost town” as restaurants remained empty three months after the site opened.
More recently, the collapse of the Cineworld chain led to the closure of the Picturehouse six-screen cinema on the site. Despite these setbacks, the council remains upbeat about the long-term prospects for the complex and says it is confident of an upturn in its fortunes.
In a statement, the council acknowledged that since the Elwick Place development was planned and designed there has been “a significant change in the retail landscape across the UK and the impact of the pandemic has only exacerbated uncertainty in the retail and leisure sector."
However, it hoped several vacant units would soon be occupied: “We are at an advanced stage in lease negotiation for seven of the units and have received proposals for a further one unit.
"While there is still uncertainty in the retail and leisure market, if these leases that are being negotiated are signed, it is possible that the majority of the development may be let by Christmas or early in the New Year.”
Medway Council has also stepped into the retail property market, acquiring the Pentagon Shopping Centre in Chatham in 2019, taking on the lease at a cost of £34.8m.
The council estimated it could benefit to the tune of £1million a year to support council finances and services.
It also stressed the acquisition was not only about raising money but connected to its wider regeneration plans, saying the area was “fast becoming known as the new economic powerhouse for the south-east.”
Council leader Alan Jarrett said: “We are committed to supporting Medway’s businesses and although the pandemic has, and will continue to have, an impact on retail property we are confident in the long-term prospects of the Pentagon Shopping Centre in Chatham.”
While some councils are wrestling with the fallout of the flu pandemic, others have been less troubled. Maidstone council recently re-opened the Lockmeadow centre after a six-month closure, during which it carried out a makeover of the cinema.
The council already owned the freehold but bought back the head lease of the complex from the previous operators in November last year at a cost of £19.1million.
It said that while a couple of restaurant chains had experienced problems, most remained open.
Other authorities have turned to the housing market to improve their financial prospects. Tunbridge Wells council has spent £2.2m buying several town centre flats between 2018-2019, including one at £500,000.
The authority did so with money recycled from what it described as disposable assets but declined to say what rental income it receives, arguing that releasing the figures would prejudice its commercial interests.
But it looks like the government is now becoming wary over councils engaging in this market.
The Treasury has said that as part of the government's recent spending review, it planned a tightening of the rules around councils taking out loans from the Public Works Loan Board.
The board is overseen by the Treasury and loans money to councils at rates that are often lower than the private market.
Under its plans to rein in potentially risky investments, the board will compel local authorities to “confirm that there is no intention to buy investment assets primarily for yield at any point in the next three years.”
In other words, councils will have to pledge that the money borrowed won't be used to buy property to make money.
It seems councils have already taken note: applications for loans from the board are said to be down by some margin.
Analysis
How big a risk councils are taking through commercial investment? Even before the flu pandemic struck, many councils were facing questions about their acquisitions and were dubbed "casino councils", speculating in the property market when they should have been focusing on services.
Projections and forecasts are one thing but as the coronavirus crisis has shown, there is no such thing as a foolproof investment and when those investors are local councils, it is taxpayers rather than shareholders who pay the price.
The number of councils investing in the property market has already come under the spotlight of MPs.
A report by the National Audit Office earlier this year found councils had spent £6.6bn on shops and offices between 2017 and 2019, a 14-fold increase compared with the previous three years.
Meg Hillier, chairman of the public accounts select committee, said it was understandable given the squeeze on public spending that councils were carrying out “risky investments” to get more money in.
“However, a fourteen-fold increase in spend on commercial property raises serious alarm bells.
"The (communities) department needs to take stock and ensure that there is protection for local taxpayers from local authorities acting as investment bankers.”
While it remains to be seen, surveys on the impact the corona crisis has had on our shopping habits and behaviour, suggest many will continue to shop online after the pandemic ends.
Research by O2 Business and Retail Economics revealed 44% expected to make permanent changes to the way they shop, with 47% of shoppers saying they expected the number of times they shopped online would definitely increase.
That may be good news for delivery services and big players like Amazon - not forgetting the local corner shop - but less good for shopping centres and the councils who own them.
But the likelihood of growing unemployment and a static economy could pose a significant challenge to councils who may find their calculations on income from leases and rentals have been overly optimistic.
What that could mean is councils will have to revise down their calculations - and look elsewhere to raise income.
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