TENS of millions of pounds have been spent on commercial property by Bournemouth and Poole councils in the last two years, despite warnings of the “substantial risks” of local authority investments.

Research by The Bureau of Investigative Journalism has found that the two councils have spent more than £50 million in a bid to close the financial gap created by falling government funding.

However, experts have warned of the “volatility” of commercial income and the risks local authorities could be exposing themselves to.

Last year, Bournemouth council spent £47 million on the Mallard Road retail park and in the summer agreed to buy several unnamed retail and office units, although it is understood that they are the buildings beneath the Avenue Road car park.

At the time, the council said it expected the deal to be completed within four weeks, however it has not responded to requests for confirmation that this has yet happened.

The council also failed to respond to requests for information about who it employed as advisers in the deals and how much they were paid for the service.

It has stepped up its purchases in recent years, launching a £125 million ‘asset investment strategy’ in 2017.

According to the strategy, the council aims to “take advantage of favourable interest rates through the Public Works Loan Board (PWLB) to assemble a portfolio of commercial property investment assets”.

As part of this, an ‘investment panel’ has been set-up, comprising of council leader Cllr John Beesley; deputy leader, Cllr Nicola Greene; and cabinet member for economic growth, Cllr Philip Broadhead, which assesses potential purchases.

The council’s use of PWLB funding has come in for criticism with its plans to build a new £70 million hotel on land adjacent to the Bournemouth International Centre through borrowed money prompting concerns about it exploiting an unfair advantage over private firms.

Through the PWLB, local authorities have access to lower interest loans than private companies are able to secure.

Its £47 million deal for the Mallard Road centre – one of the largest investments of any local authority in the country in recent years – was funded through loans from other councils.

Despite the size of the deal, its total commercial investment is less than several smaller councils, including Spelthorne Borough Council in Surrey which has spent more than £650 million in the last three years.

Many local authorities have even bought property outside of their area, including Eastleigh Borough Council buying Aviation Business Park at Bournemouth airport for more than £18 million last year and Fareham Borough Council owning the Tesco site in Ringwood Road, Poole.

Meanwhile, Poole council paid just under £10 million to buy the Wessex Trade Centre in December 2016.

Property advisers Vail Williams were employed by the council to guide the deal, however the council has refused to say how much the firm was paid, saying that the information is “commercially sensitive”.

A report published last year said that the council was earning a net surplus of £229,000 a year from the industrial estate – a return which would see it earn back the initial £9,960,000 sum in 44 years.

A report to the council in September 2016, before the deal was finally agreed, said that officers were “extremely aware” of the risks of the purchase but that they did not outweigh the benefits.

However, experts have warned that councils could be “overexposing” themselves to long-term debt.

Don Peebles from the Chartered Institute of Public Finance and Accountancy (CIPFA) said that there were “at least two substantial risks” to the practice of councils borrowing money to fund asset purchases.

“There’s the potential for the dependency on commercial income,” he said. “Commercial income itself is volatile. There’s no guarantee that it will continue at a stable rate.

“That can be compared with the traditional funding streams received by local councils which is, notwithstanding the downturn in recent years, usually stable.

“The second concern is the extent to which local authorities can be overexposed by taking out debt over a long period of time relative to the assets they are procuring.

“They will still have the debt repayment to fulfil irrespective of what happens to that asset.

“What that means is council services are directly related to the vagaries of the commercial property market.

“It means services have a built-in instability, which was never intended within the design of local government finance.”

Despite the risks, a spokesman for the Local Government Association, said that the money local government has "is running out fast" and that they were having to find "alternative" sources of revenue to generate income.