More JVs, More Development, More Strategy As Birmingham Rethinks Its £2.4B Property Portfolio

Birmingham City Council is one of the U.K.'s largest landlords with a commercial property portfolio (excluding housing) valued at £2.4B, and an annual rent roll of £32M.

But reports to councillors suggest poor management and lack of strategy have hobbled what could be one of the giants of the region's property sector.

Now the city council's ruling executive will consider a new property strategy at its meeting on 13 November and it could mean more development of council sites, and many more joint ventures, conversion of old office space and a spate of freehold sales. Ten sites, many in the Soho/Jewellery Quarter, are already lined up for disposal, according to council paperwork.

The aim is to drive income from the portfolio by 2024, but also to drive growth and housing delivery in the city. The first big test will be the announcement, due any day, of the council's partner in the 3.2M SF redevelopment of the 42-acre Smithfield Wholesale Markets site, where Delancey and Landsec have been reported as among the likely winners.

The strategy also comes as Birmingham City Council's new chief executive, Dawn Baxandale, begins to exert her influence over a local authority frequently accused of poor management.

A report to councillors shows how badly the portfolio needs rethinking. It points to lack of commercial property skills, too many decisions based on short-term financial need not long-term strategy, poor grouping of assets to make the best commercial sense, under-invested assets going to waste and that 80% of the revenue comes from just 20% of the 5,800 properties in the portfolio, raising serious questions about why the council owns the other 80%.

The detailed strategy says the council's new approach will drive returns and be a catalyst for growth in the city. This will mean rebalancing a portfolio where returns are heavily baised toward very low risk investments such as ground rents (13% of income), car parks (7%) and industrial (26%). Offices account for just 11% of income, and retail (the most stressed property sector) for 20%.

"To support sustainable returns, without being over-exposed to risk, the percentage of office, retail, industrial and other types of assets will be targeted, to spread the council's risks over several sectors, properties, geographies and tenants," the document says.

The council will leverage expertise and capital by forming joint ventures, and will develop more arm's-length organisations like the wholly-owned propco established  to hold the Hilton Metropole Birmingham and Crowne Plaza NEC hotels.

"The transaction of £29.5M provides the City Council with an investment vehicle which can be used to borrow money more cheaply and give more flexibility to local authorities than national government allows," the report says.

The council will also look at using office properties in the city centre which are no longer fit for modern offices for residential accommodation, releasing poor quality industrial stock where the properties are in areas outside core employment areas and selling on freeholds.