The massive Royal Mail Centre in Plymstock has just been sold

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Plymouth City Council has bought the huge Royal Mail centre at Plymstock – and is set to rake in £325,000 a year in rent.

The local authority splashed out an undisclosed but "significant" sum for the Royal Mail Regional Mail Centre, in Breakwater Road.

It means the city council now has an investment portfolio worth in excess of £130million.

Every year an average of about £10million in rent comes into the authority from these properties, which range from small shops and retail parks to industrial estates.

The council has taken advantage of rock-bottom interest rates to build up its estate, saying rents generated will go towards funding frontline services.

Its latest acquisition is the freehold interest of the 21-acre site, on Breakwater Industrial Estate, which it sees as "part of a long-term investment strategy to generate a substantial income stream".

The site is made up of three separate buildings totalling 199,000sq ft.

These include a purpose-built sorting centre/delivery office, a call centre, and a vehicle maintenance unit.

The purchase is secured against a "quality tenant", the Royal Mail, which has a lease until 2032 and sees all the buildings are "critical to their operation in the South West", the council said.

The council was advised by external chartered surveyors JLL and Savills in the acquisition.

Cllr Ian Bowyer (above), Tory Leader of Plymouth City Council, said: "I'm excited to see this crucial piece of real estate added to the Council's portfolio.

"The Regional Mail Centre is very important to the city and will deliver a substantial return on investment, while at the same time supporting jobs.

"We are already landlords of a significant amount of commercial property and have a good track record in maximising returns from our property estate."

In late 2016, the council bought the freehold of the 81,000sq ft Friary Retail Park, home to chains such as Dunelm, Hobbycraft, Pets at Home, Smyths Toys, Poundland and Costa, for an undisclosed sum, but said it will generate £500,000 in annual rental income.

The council also owns properties such as new-build industrial units at Langage, and is behind the creation of a Marine Enterprise Zone at Oceansgate in Devonport.

It comes as heavy cuts in central government funding have left local authorities having to consider increasingly creative solutions to ease financial constraints.

Between 2010 and 2015, there was a 37 per cent cut in real terms in central government funding to councils.

So councils have looked to borrow from the Treasury-run Public Works Loan Board (PWLB) at rock bottom interest rates and plough the cash into commercial property ventures that can offer returns of as much as eight per cent.

Tim Western, a director at leading commercial property consultancy JLL, which advised the city council on its Royal Mail deal, said across the South West local authorities are hungry for investments.

He said councils bought more than £1billion of property across the UK in 2016.

But some experts are worried by the trend, with former business secretary Sir Vince Cable warning the strategy risks creating a bubble that could bankrupt local authorities.