Public Sector Asset Management
With public sector organisations under pressure to make savings and improve returns on the spending of public funds, there is more interest than ever on the efficient management of their extensive property portfolios. The public sector portfolio in the UK comprises 10.8 million sq m and accommodates a large and diverse range of departments. The three largest are Justice (2.0 million sq m), Work & Pensions (1.9 million sq m) and HM Revenue & Customs (1.6 million sq m).
Local Councils and other public sector bodies such as the NHS and Educational Institutions are increasingly contracting out property services and using external management advisors.
The benefits of this to these organisations include:
- Driving down management costs as a percentage of rental income
- Improving rental income from all tenanted properties
- Increasing occupancy levels
- Identifying asset realisation opportunities
- Improving the utilisation of property through space planning
- Reducing internal staffing costs through the outsourcing of lengthy or specialist projects
- Releasing senior staff to concentrate on the delivery of services
The priority for public sector clients this year is to implement intensive asset management strategies. A private sector advisor can take on the time consuming tasks of dealing with tenants and conducting negotiations to maximise rental income. They will offer strategic advice on lease renewals, methods to increase income and rental growth and, by becoming familiar with the portfolio, will be ideally placed to offer guidance on transactions in the future.
As the property market progresses through its current cycle and demand improves, public sector portfolios will increasingly require transactional advice. Some private sector advisors will have the in-house expertise of agency and investment teams to take the portfolio through these market cycles.
It is anticipated that while 2010 will experience a positive trend for investment pricing and an improvement in occupier demand and rents, development activity will still be very subdued. It is not considered likely that the property market will return to normal levels of trading until 2012 at the earliest.
An example of a public sector body taking a new approach to these issues is Glasgow City Council, the first local authority in Scotland to transfer its commercial property portfolio to an arms-length company. The Council wanted to maximise rental income whilst holding on to all its commercial property assets. By transferring to a separate company the Council was able to secure bank borrowing against its assets and generate a capital receipt.
The new company, City Property Glasgow LLP, has taken control of the investment property portfolio and is also dealing with surplus land and assets. Ryden is working with City Property to manage the investment portfolio and enhance rental income. This includes active asset management, securing new tenants, valuing properties and providing building surveying services.
The drive for substantial savings in the public sector is set to grow over the coming decade, resulting in a need for innovative ways to better manage the public estate. To improve the portfolio’s efficiency and its sustainability, the public sector is likely to focus on:
- The scope to transfer public sector property to the private sector/arms-length companies
- Improving the utilisation of space
- Improving the energy efficiency of its buildings
- Maximising the opportunities for co-location or joint use of buildings with other public sector occupiers
- A more collaborative approach to the procurement of facilities management services
For more public sector asset management advice contact Iain Wardrop on 0141 270 3124 or at iain.wardrop@ryden.co.uk
