The committee received the report of the Interim Head of Property providing an update on performance of the Croxley Business Park over the past year.  The Interim Head of Property introduced the report explaining that this had gone before Cabinet on 7 September.

The Interim Property Manager highlighted key areas and in particular explained:

·        The history of the council acquiring a 40 year head lease in the park; with the Council having the option to acquire the park at the end of the term.

·        That the council received the full passing rental income from occupational tenants in return for paying a rent of £9.2m per annum index linked annually to RPI.  As the RPI was currently at 1% as opposed to an anticipated 2.5% this created headroom for rental for tenants.

·        That Columbia Threadneedle Investments, the vendors of the park, made a payment of £92m to the Council to cover rent top ups and planned and preventative maintenance.

·        That despite Covid-19, the Park had had a success in attracting three new tenants (the businesses all new to Watford) in the last four months.  This reduced the vacancy rate from 17% to 12% and was an encouraging sign.

·        That the impact of Covid-19 had resulted in requests for rental concessions; and with two companies at the Park going in to administration.  There was an expectation to negotiate packages to defer rental payments albeit monies had to be paid in the financial year.

·        That Grant Thornton had prepared a new financial model to enable accurate forecasting and scenario planning of the Park; which would be operational in Q3 of this financial year.

·        That the property managers Workman, and the Councils financial advisors Lambert Smith Hampton Investment Management (LSHIM), monitored aged debt at the Park.  This had reduced to £500k with an expectation that it would reduce further.

·        The quarterly monitoring process of the Park by the Council’s Property Investment Board; with LSHIM being a member.  This process had indicated that the Park was on track in relation to the financial assumptions made during acquisition; with the levels of rent in the original model still accurate.

·        That the main risk around the Park was the level of rental income to be achieved following the development of Building 1; this was unknown at present.  Marketing would take place towards the end of the year.  However, the £92m payment did allow for a level of vacancies.

·        That the performance of the Park in the last year had been encouraging and the Grant Thornton model would be of great assistance going forward in producing additional metrics and reports to the Council.

Members thanked the Interim Property Manager for the report and were reassured that matters were on track in the Park.  They discussed vacancy rates, debt issues and matters in relation to maintenance. 

In response to a related question, the Interim Property Manager clarified that £68m of the monies provided by Columbia Threadneedle was for maintenance in order to keep properties in a lettable condition over the forty year period.  The expectation was that through investment these monies would increase over time and cover these costs.  In response to a further question, the Interim Head of Property explained that some ofthe shortfall in revenue was likely to be made up by tenants; but with much depending on developments over the next few months.

Members discussed the issue of occupiers reflecting on whether they would continue to need the quantum of office space in the future and the impact this may have on the Park.  In response to a question on this aspect, the Interim Head of property advised that rolling leases with serviced operators were shorter in nature but with normal  provisions applying.  The Interim Head of Finance undertook to provide members with information on the number of occupiers located in the Park with rolling leases.

In conclusion, members considered the Park to be a good and resilient investment.  They ended by discussing the business opportunities provided by companies through the letting of office space.

RESOLVED –

       that Finance Scrutiny Committee notes the contents of this report.