Councils' commercial property arm continues to outperform market

03/05/24

Babergh and Mid Suffolk's commercial property investment company raised more than £1.26m in net income last year.

Babergh and Mid Suffolk’s commercial property investment company CIFCO continues to generate money to be ploughed back into the districts, reports published this week show – with more than £1.26m in net income raised last year.

This means that CIFCO Capital Ltd has now generated a net income of more than £12m for Babergh and Mid Suffolk District Councils, since being established jointly by councils in 2017.

During previous administrations, the councils borrowed a total of £99.2m to invest in its commercial property portfolio. This now comprises of 22 properties with 83 tenants, based mainly in the eastern region, strategically split across industrial, retail and office sectors in order to balance risk.

The cost of the loan repayments to the councils is then covered by income received from CIFCO, with further net income on top making a regular and significant contribution to the councils’ finances.

A report going before the councils’ joint Overview and Scrutiny Committee later this month, shows how high inflation and interest rate rises have hit commercial property values nationwide. As a result, the value of the CIFCO portfolio has decreased 2.58% since March 2023. However, the report also details how CIFCO is outperforming the rest of the market – with rental arrears consistently below 5% and empty properties representing just 3.4% of the portfolio compared to a market benchmark of 8.3%, thanks to a combination of company expertise, and the quality and diversity of its assets.

CIFCO is also investing in the reducing the environmental impact of its portfolio, with 50% of its properties now holding an EPC rating of C or above – and it is on track to meet its target of ensuring all properties have a C rating or above by 2027.

CIFCO chairman, Sir Christopher Haworth, said:

“Market conditions this year have been slightly more stable than last year, and despite ongoing challenges, we are outperforming industry benchmarks and have a robust portfolio and business plan that will see us continue to generate income for Babergh and Mid Suffolk District Councils.

“We will continue to focus on opportunities to improve the quality of our properties and enhance the value of our portfolio wherever possible, not only to create rental income growth, but also to improve the sustainability credentials.”

Cllr John Ward, cabinet member for finance, assets and investments at Babergh District Council, said:

“CIFCO continues to provide much needed income to help us continue to deliver our services to residents. We have made no secret of the fact that we face a £6.7m budget gap over the next four years, and that situation would be considerably worse without income from CIFCO.

“Any reduction in the overall value of these assets due to fluctuations in the property market has no day-to-day impact unless we are looking to sell the portfolio. In the meantime, these properties are a long-term investment which continues to provide a valuable revenue stream for our council.”

Although CIFCO, as the councils’ commercial property arm, is set up specifically to generate revenue for the councils, both Babergh and Mid Suffolk also invest directly in property within the districts, to help regenerate towns and communities and to provide social housing.

Previous acquisitions in Mid Suffolk have included vacant units in Stowmarket town centre, including the former Aldi unit, which is now PureGym, and the former NatWest, now leased to the John Peel Centre. It has also invested in Gateway 14 in Stowmarket and the redevelopment of its former council offices in Needham Market delivering affordable and market homes.

Examples of acquisitions within Babergh include Borehamgate Shopping Centre, employment land in Hadleigh and South Suffolk Business Centre as well as parts of the Chilton Industrial Estate in Sudbury.

The councils have also built or acquired 624 new council houses in the districts over the last eight years.

Cllr Richard Winch, cabinet member for housing and property at Mid Suffolk District Council said:

“We want to be sure that we are investing responsibly to help create resilient and thriving communities in Mid Suffolk and have ensured strong governance, risk management and oversight of CIFCO operations.

“We welcome CIFCO’s continued work to improve the environmental sustainability of its portfolio, and we are committed to using the revenue it generates to deliver and support our priorities for the district – including regenerating our high streets, supporting and connecting our communities through the delivery of housing and improved facilities, and taking further action to tackle climate change.”

The report goes before joint Overview and Scrutiny Committee on May 13 ahead of going both Full Councils next month.