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Localism is the concept that has characterised this government's time in office. Power is being devolved at a rapid rate and communities invited to take charge of public services. But when it comes to property, chancellor George Osborne isn't taking any chances.
The comprehensive spending review confirmed a major shift in the way the government's property assets will be managed. Just as local authorities are considering making savings by consolidating property assets and managing them centrally, the government has followed suit.
Plans for two property vehicles to own and manage the central government estate in central London and Bristol have been confirmed. All properties occupied by government departments in these areas will soon come under the control of the recently-formed Government Property Unit, headed by former Ernst & Young senior partner John McCready.
If the pilots are effective they will be rolled out nationwide. Potentially, central government departments across the country will pay market rents to the property unit. A centralised approach should allow vacancies to be identified and surplus assets to be sold.
Reducing lease liabilities
The focus so far has been on reducing lease liabilities. But Rob Oldham, senior director at CB Richard Ellis, warns that was just the start: "Exercising breaks and not taking new leases was just a very short term measure. The government was saying it didn't want the problem to continue to escalate. That's yesterday's news."
The scale of the cuts means the emphasis is likely to shift to the sale of freehold assets. This will require careful management to try and get best value. But with the pressure on to reduce expenditure, immediate sales will be tempting in an effort to generate capital income and stave off cuts elsewhere.
Dr Walter Boettcher, director of research and forecasting at Colliers International, says: "With the best will in the world, 25-30% budget cuts are going to mean the loss of jobs and services. This means less space will be needed so I think we will see a surge in assets sales. They'll need to realise receipts quickly so for the most part I don't think they'll be able to hold on until the market improves."
This possibility has prompted major concerns in the private sector. A deluge of public sector property assets hitting the market could result in huge falls in property values. In many areas, the typical tenant for these properties is also public sector, exacerbating falling values because occupier demand is at a minimum.
Liz Peace, chief executive at the British Property Federation, says: "The loss of nearly half a million public sector jobs will reduce the demand for office space considerably in some areas."
But a rush to make sales at the same time as breaking leases has potential consequences within the public sector as well. While a reduction in the public sector estate provides an opportunity to improve efficiency, it will require careful consideration of long-term property requirements.
Resources
Tony Dolphin, senior economist at the Institute for Public Policy Research, thinks this has been lacking. "The spending review should have looked at what departments want to be doing in four years time and identified the resources needed to do that, including buildings. I'm not sure that's happened."
The danger is that long-term policy objectives may be compromised by chasing cost savings in the short-term.
Oldham believes this is the situation the government is trying to control. "If you put millions of square feet of public sector property up for sale that will depress the market, which is why the government has set up these property vehicles" he says.
"Once the responsibility for the properties passes to them there is a regulating mechanism. They will take a very commercial view."
But initially, the vehicles will only exist in London and Bristol. And the public sector estate extends beyond properties occupied by central government departments. Robert Bailey, director at Corporate Property Advisers, says: "The single landlord approach is a step in the right direction but doesn't address the vast amounts of redundant space that will increase across local government."
Public property offers huge potential to make savings and reduce outgoings. But the scale of the cuts in the spending review raises the prospect of widespread fire sales. Avoiding this scenario will be crucial to ensuring the long-term success of a reduced public sector estate.
While full details of the government's property strategy emerge, the onus will fall on public sector managers to avoid these pitfalls. An approach that considers the long-term implications of property decisions alongside the short-term savings potential will ensure that problems are not merely being put off for years to come.
From Bubb's Blog
From Flip Chart Fairy Tales
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