Council’s property income suffers £1-million hit after long-serving tenant confirms exit

A business park bought by Monmouthshire council as a commercial investment is facing a budget shortfall of more than £1 million next year.

The county council’s commercial property income targets have taken a hit after Mitel Networks confirmed it will be leaving Castlegate Business Park in Caldicot in March.

The telecommunications equipment supplier has been based at Castlegate since 1983 and ever since Monmouthshire council bought the site for £7 million in 2018.

But the county council says the firm has decided to exercise a break clause and leave the site in March which will have “a significant impact” on rental income.

Castlegate is one of two investment acquisitions owned by Monmouthshire council, with the other being Newport Leisure Park.

The two assets have a combined income target of £609,000 for the council.

But council documents for next year’s budget show Castlegate, which was expected to generate £209,000, is now expected to make a loss of £880,274.

Expenditure on the site is estimated at £1.35 million, but income is predicted to be just £470,356.

Newport Leisure Park is expected to generate £300,067, which is also short of its £400,000 income target.

The combined shortfall in income of the two assets is nearly £1.2 million.

A council spokeswoman said the budget forecast “highlights the worst case position and we are optimistic that on-going discussions will result in a reduction to the highlighted pressures”.

The council is proposing to use the entire balance of its ‘sinking fund’, which has been created using surplus income from the assets, to help meet the shortfall.

The sinking fund has a balance of £539,056, leaving a remaining budget pressure of £650,151 for next year.

A council report says: “It is acknowledged that the pandemic has accelerated structural changes in the office market and Castlegate now needs to respond to those changes so that the site can become an attractive proposition for future occupiers.

“This may involve landlord refurbishments and tenant inducements which will have a short-term negative impact on the financial performance, however, would safeguard a longer-term income position.”

The report says a review of the investment portfolio was discussed at an investment committee meeting on November 9, “together with the options of retention or disposal”.

The council has decided to retain both Castlegate and Newport Leisure Park.

A council spokeswoman said the authority is in discussions with prospective occupiers for Castlegate Business Park.

The council is also planning a marketing campaign and a review of the service charge is being carried out “to reflect the reduced occupancy levels”.

Mitel Networks declined to comment on its future plans.