Feeling the heat

3 Jul 09
Public bodies are under pressure to 'sweat' their property assets and will need to start planning now, warns Angus Mylles
By Angus Mylles

Public bodies are under pressure to ‘sweat’ their property assets and will need to start planning now

In the past decade, asset management has become well entrenched in the public sector, and many organisations have come to appreciate the value of closely scrutinising their property estates.

But sometimes the practice of regular strategic review can wane. Although this is understandable, it is unlikely to continue to be acceptable. The Treasury’s Operational Efficiency Programme review, published in April, highlighted the £390bn in freehold assets held by the public sector, and set targets to reduce waste and increase capital receipts.

The property work strand of the review, led by Lord Carter of Coles, pointed out that no single minister is responsible for running this sizeable estate and the absence of good data hampers effective asset management. 

The review believes renewed pressure needs to be applied to improve asset management practice and to ‘sweat’ the asset base for greater returns.

One of the headline recommendations is the creation of an over-arching government department or function to oversee all public sector property assets. This would include central government, its agencies, non-departmental public bodies and delivery bodies such as local authorities, the NHS, emergency services and education.

The department’s remit would apparently be to oversee and improve property performance, which the review said was variable in quality across the public sector estate. It would do this by rationalising holdings for more efficient and less wasteful use; providing property standards and advice; developing cross-government initiatives; and identifying surplus and under-used assets for disposal.
Nor is this a vague remit. The OEP has identified a timetable for activity, highlighting a target of generating savings of £1.5bn per year by 2014 and outlining the potential for around £20bn in capital receipts from disposals over the next decade (excluding council housing). 

Also recommended is a more transparent system for determining the value of assets, identifying ‘core’ properties that need to be retained, those that are ‘intermediate’ (where a decision is pending) and those that are ‘surplus’ and should be sold. Importantly, this information will need to be published.
As well as seeking to introduce new activity, the review did acknowledge good practice. The CIPFA Property Asset Management Planning Network, which boasts more than 330 member organisations, was identified as a valuable way for authorities to hone their best practice. 

The importance of the network is likely to increase as the Treasury looks set to introduce new financial targets and operational objectives. The network will help members stay one step ahead of these legislative changes, as well as keep track of good practice and share lessons learned.

For authorities and public sector bodies that have lost staff or lack in-house property expertise, other flexible solutions are available, from the traditional outsourcing or partnering approach to seconding individuals with the appropriate skills. It is possible to secure a pre-vetted property consultancy partner through organisations such as the Homes and Communities Agency National Property Panel.
The private sector has also not been slow to recognise the valuable role that public sector assets could play in helping to sustain struggling development sites.

In recent weeks, the British Property Federation has set out its regeneration manifesto. One of the five points is to significantly increase equity-sharing practices on regeneration projects, encouraging councils to donate land to make development commercially viable in a restricted market.

The BPF points out that this is not about using publicly held assets to prop up private sector profits, but about taking value out of developments at a different stage to reduce pressures on cash flows and initial project costs. These kinds of arrangements would need very careful management to protect the long-term vested interests of the public sector organisation, particularly as this donation does not guarantee the project’s commercial success – it just helps to initiate development.

One of the wider concerns when there is increased pressure on asset management is that hasty decisions can be made out of context. It is vital that managers follow a documented, strategic approach based on guidelines from organisations such as the Royal Institution of Chartered Surveyors. Also, if a property is brought forward for sale without thorough investigation, its market value and potential for quick disposal can be damaged.

Determining asset values can be an exercise in benchmarking in a strong market, but becomes a fine art and one that must be underpinned by real professional competence in more unstable conditions.
Over- or under-valuing assets at this time could expose property teams and the executive when it comes to that all-important transparency.

It is possible to question the likely implementation of the OEP review and some of its more complex recommendations. Could it be another problematic intervention like home information packs? It could, but in an economic downturn, £390bn of assets is a very tempting target for the government to revisit, with or without a single controlling body. 

It seems safe to say that public sector assets are once again in the government hot seat. It would be a brave asset manager who left it another year before dusting off that asset management plan.

Angus Mylles is a partner and head of public sector at property consultancy Bruton Knowles

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