A Kent council’s biggest ever property investment has crashed in value by at least £46 million in two years – and is thought to have fallen even further since the coronavirus pandemic struck.

In a controversial purchase branded “risky” by critics, the authority forked out a total of £154 million for the Whitefriars shopping centre in Canterbury between 2016 and 2018.

But a valuation of the site in March this year put its worth at just £108m, with alarming financial audits also showing a drop in rental income.

The Covid-19 crisis has since wreaked havoc on the retail sector, forcing some shopping centres around the country into administration.

The council insists its investment is sound and its market value as a retail centre is largely irrelevant because it has no intention of selling the site.

But discussions are said to be underway on how Whitefriars could be rebooted if it suffers a serious collapse in retailers.

Options include the council moving some of its own office functions onto the site, as well as creating more residential accommodation.

However, council bosses remain bullish that the centre’s future is largely in retailing.

“We have always seen this as a long-term strategic purchase which will inevitably have its ups and downs,” said the authority’s media boss Leo Whitlock.

“The regeneration and control of a large part of the city centre was at the very heart of our decision to buy Whitefriars.

“It allows us to have a substantial say in Canterbury’s future and enables us to keep the needs of our residents and the district’s businesses front of mind. That way they can hold us to account if we make the wrong choices.

“Having that control is all the more important as the high street, which was already changing, successfully adapts to life after the pandemic.”

But Labour councillor Dave Wilson – who voiced strong concerns about the purchase in 2018 – branded the crash in value as both “atrocious and predictable”.

“The argument that the valuation is irrelevant is wholly spurious,” he says.

“To have lost £46 million in just two years at a time when the council is under severe financial pressure is scandalous, regardless of Covid.

“Arguments that it is capital rather than revenue miss the point altogether; the value is dropping calamitously – as with all retail investments – and the £154m has to be paid back regardless of the valuation.

“To simply make back the value that has been lost would take five years – in other words, it’s losing value faster than it is generating revenue.

“The centre has no obvious immediate alternative use than as a shopping centre, so what is the purpose of owning it if it isn’t financially beneficial.”

But Mr Whitlock says the council owning Whitefriars is better than part of the city being controlled by investors who are purely driven by short-term profit-making.

'We’d rather be knocked for trying to do the right thing for the city than sitting on our hands' - council media boss Leo Whitlock

“Recessions come and go,” he said. “But they are always followed by periods of strong economic growth and prosperity, which will benefit the council taxpayer and help pay for vital frontline services.

“People are more than entitled to take pot-shots at us on this because we spent public money. It’s the same old knocking narrative that goes round and round.

“But I think we’d rather be knocked for trying to do the right thing for the city than sitting on our hands and letting it all play out without having any influence, especially as we emerge from the pandemic.

“At least people can then hold us to account for good or ill.”

LOST CAPITAL VALUE AND FALLING INCOME FEARS

Whitefriars was built in 2005 with Fenwick as its flagship store. It was sold by Land Securities in 2007 for £253m to Henderson Global Investors - later to become TH Real Estate - and the Canada Pension Plan Investment Board as part of a 50/50 venture.

The city council already owned the freehold to the site but bought the first 50% of the retail centre from the pension board in 2016 for £79m, and the remaining half from TH Real Estate in 2018 for £75m.

Most of the authority's borrowing is tied up in Whitefriars, with the purchases funded largely by loans.

But now questions are being asked as to whether future rents returns will meet the huge repayments and what happens if shop units start to fall empty as the growth in online shopping continues.

Income from rents is already falling, down from £8.25m in 2018/19 to £7.4m in 2019/20.

That £7.4 million is after paying management fees to New River. But it does not include the cost of loan repayments, which the council says it cannot provide a figure for.

Cllr Wilson says: "The future is so uncertain when you see reports that commercial landlords - who are more hard-nosed than the council - are currently only receiving 25% of the rents that are due, and are under constant pressure to reduce rents drastically as tenants use company voluntary arrangements to cut their obligations."

WHAT IF IT GOES "HORRIBLY WRONG"?

Whitefriars could be "rebooted" as office and residential space if everything goes "horribly wrong" in retailing, says city council leader Rob Thomas.

And that could include moving some of the authority's own office functions onto the site instead of to a proposed £12 million new HQ at Wincheap.

Cllr Thomas says various options for new town centre strategies are now being discussed for inclusion in an updated Local Plan, which will include preparing for a continuing shrink in high street retailing.

But he "remains bullish" that Canterbury, with everything it has to offer visitors, will continue to be a place where retailers will want to do business.

"We are currently updating our Local Plan, which will include new town centre strategies, and while there may be some contraction of retail, people need to understand that we control the planning aspect as well as Whitefriars itself.

"But in terms of retail, I'm still bullish that we will get through it because Canterbury remains a jewel in the crown for east Kent shopping and a popular place to visit, so it's attractive to retailers.

"At the moment it is very fashion-heavy and lacking any kind of office space and some of the other facilities, and it is something that was being reviewed even before Covid, as to how to get the best mix in the complex.

"I think there will be a slight diversification over time. If everything went horrible wrong in retailing you would have to ask 'how would you reboot it'?

"But we do have a smoothing reserve if there is a shortfall in income to meet fluctuations because we do know that over the course of managing the site we will never have 100% income."

Cllr Thomas says he is now not convinced by the proposal to move the council's HQ to a new 'super green' office on the Wincheap estate, and Whitefriars may provide an option if circumstances arise.

"I thought the office move to Wincheap was a good idea at the time but since Covid and the success of more working from home, I think it's dead," he admits.

"We do need to review the land and property and we will change tact.

Cllr Thomas also thought there could be more residential accommodation on the upper floors if retailing did contract significantly.

"There is a possibility that Whitefriars may end up being part of the mix. There could be operational issues but it would be fair to say it's being assessed."

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