Auditors expect Cambridgeshire County Council to weather the storm despite buying a cinema, shops, restaurants, student flats and a business park ahead of the Covid-19 pandemic
PUBLISHED: 23:13 26 July 2020 | UPDATED: 23:13 26 July 2020
Covid-19 has provided a serious short-term challenge to the county council’s decision to spend £6.5m on a cinema and three restaurants in Wisbech.
“In the short-term, the Covid-19 pandemic may result in a shortfall in commercial property income in 2020-21, due to the financial pressures placed on tenants,” says a report from the council’s auditors.
They say that the businesses at Cromwell Leisure Park, Wisbech, are “the most adversely affected”.
The report to the audit and accounts committee also re-iterates previous difficulties with Brunswick House, a 251-bed student housing block in Cambridge. The council bought it for £38m.
“Brunswick House is also exposed to the uncertainty in demand for student accommodation in the current period and the cancellation of face-to-face provision in Cambridge during the shorter summer period,” says the auditors.
The council is working with managing tenants for the tenants about long –term sustainability and to ensure lease agreements are met, they note.
The council acquired its first commercial property investment in July 2018 for £39m - the Brunswick House student accommodation in Cambridge.
Last year it continued to invest in a diverse portfolio of properties.
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1: Cromwell Leisure Park Situated in Wisbech; the council paid £6.5m for a cinema and three restaurants with a net yield of 10.1 per cent.
2: The council also bought a site in Newmarket Road, Cambridge, that is leased long-term to Tesco. It cost £54.5m with a net yield of 4.6 per cent.
3: Kingsbridge Centre Industrial units in Peterborough near the A47, let to a distribution company and a technology firm, was acquired in August 2019 for £12.3m. It offers a net yield of 5.9 per cent.
4: Evolution Business Park in South Cambridgeshire and comprises of office/laboratory units leased to various companies, was bought in January 2020 for £29.7m; it offers a net yield of 5.7 per cent.
The auditors’ report that commercial property investments in 2019-20 delivered £3.8m.
“Underachievement was partly due to timing and scope of new purchases, as well as new competition for Brunswick House, with another student residence opening up nearby,” say the auditors.
“In the longer-term, the acquisitions the council has made are diversified and commercially sound, meaning that the council is confident of meeting or exceeding the target net return across the quinquennial planning period.”
Auditors conclude that the investment strategy by the county council places a strong emphasis on the financial strength and covenant of tenants and by diversifying the portfolio of assets means it is not exposed to one particular section of the market.
“This has mitigated the overall financial risk to the council from commercial property activity,” is their conclusion.
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