Thames Tower in Reading is being launched for sale for £83.9 million, reflecting a yield of 8%, the first asset to be formally brought out from Spelthorne Borough Council's up-to-£1 billion up-for-grabs portfolio.
The 195,111-square-foot multilet office was redeveloped in 2017 and represents the most prime town centre asset on the market in the South East region for some time.
Spelthorne bought the Thames Tower in 2018 from a joint venture between Brockton Capital and Landid as part of a portfolio also including The Charter Building, Uxbridge, and The Porter Building, Slough, paying £285 million for all three buildings.
The office is in Reading town centre just off Station Plaza and comprises 14 upper floors. It is 92% leased to tenants including serviced offices group Fora, Ericsson, BDO and Jacobs UK with a weighted average unexpired lease term of 5.4 years and an average passing rent of £36.97 per square foot.
CoStar News revealed in March that Spelthorne had picked Knight Frank to oversee a major sale of commercial property assets.
The local authority in Surrey splashed circa £1.077 billion on commercial property over the last decade, as it joined other UK councils in investing after rules on council borrowing were relaxed in 2016. Between 2016 and 2019 local authorities spent more than £6 billion on commercial properties, inside and outside their districts, during that period, according to CoStar data.
Spelthorne has said in council papers that it will carry out a "full" rationalisation programme for its property portfolio, with disposals of the entire portfolio carried out over the next 10 years.
The portfolio is almost entirely focused on offices, notably close to Heathrow Airport. According to Spelthorne's website it comprises 11 large assets with a value of £776 million, though these values date to 2023.
The largest assets in the portfolio include BP's circa 600,000-square-foot office campus in Sunbury, which it announced recently it is leaving after committing to a new headquarters at Landsec's Timber Square in Bankside. Spelthorne bought it for around £360 million and a 4.25% yield in 2016. Other large assets include 12 Hammersmith Grove in Hammersmith, which it bought for £170 million in 2018.
Like many councils across the UK, Spelthorne began investing in commercial property to generate long-term income to offset reductions in their funding. The investments were enabled by ultra-low interest rates on long-term loans from the Treasury's Public Works Loan Board.
The government ordered a review in 2020 into the investment splurge, which found between 2016-17 and 2018-19, local authorities bought an estimated £6.6 billion of commercial property. The review concluded this rise of “debt-for-yield” activity had led to Public Works Loan Board funding being used for purposes other than those originally intended and the government ended access to PWLB funding for councils that intended to buy commercial assets to generate income.
Concerns had grown particularly around expenditure on properties outside local authorities’ own areas, with 21% of all acquisitions by value made outside their home regions, the National Audit Office reported in a major 2020 review which used CoStar data. Another area of concern was investment in struggling and complex retail centres.
Knight Frank declined to comment.