By Civil Service World

21 Nov 2011

For years, each department has run its properties in splendid isolation. And the coalition’s ‘property vehicles’ have yet to make an impact, discovers Ben Willis – but closer collaboration could produce big savings for the taxpayer.

The public sector is the UK’s largest landowner, owning some £370bn worth of property around the country. The civil estate alone – defined as the core offices and property owned and occupied by central government departments and their agencies – comprises 6,700 buildings, collectively providing over 10 million square metres of floorspace.

But assets can also be liabilities, and running such an extensive estate is costly. According to the latest government figures, the entire public sector estate costs the taxpayer around £25bn a year to run, with the civil estate accounting for over £3.5bn of that. Given those figures, it is unsurprising in these times of austerity that the government estate has found itself a prime target for the Cabinet Office’s Efficiency and Reform Group, charged with cutting billions of pounds of public expenditure.

Since the election, the government has taken a number of steps to start bringing down costs across the central estate. A ‘control regime’ established by Cabinet Office minister Francis Maude means that departments wishing to renew or sign leases, or to buy or sell property, require his approval; applicants are often pushed into reducing their office estate, moving staff into other offices as falling head counts free up desk space.

In March, the ERG’s initial control regime gave way to a longer-term set of national property controls, extending the ‘comply or explain’ principle with a set of guidelines covering metrics such as the amount of office floorspace required per worker. Meanwhile, the Government Property Unit (GPU) – which sits within the business department’s Shareholder Executive but answers to Maude – has been helping departments to identify opportunities to release property and share offices, in an attempt to bring greater coherence to the management of the central government estate. In the long-term, the government hopes to raise £20bn through the sale of under-used property assets.

The GPU is also running two pilot property ‘vehicles’, in Central London and Bristol. These have been set up to co-ordinate the consolidation of the central government estate in both these areas and, according to the Cabinet Office, have already helped reduce the central government estate by 517,000 square metres, saving £90m in running costs; projections suggest that the figure will reach £180m by the end of this financial year, and £400m by the end of the decade. However, asked to provide details of how these figures were reached, the Cabinet Office was unable to respond before CSW went to press.

Vehicles travelling slowly

There are further questions over the shape adopted by the property pilots. Many observers believe that the really big opportunities for generating savings from the government estate will only come through the involvement of the private sector – and when the property vehicles were launched, there was a widespread expectation that private sector partners would be brought in to support co-locations and seek additional tenants. Certainly, the classic ‘property vehicle’ model is an asset-backed joint venture, of the sort used by local government to stimulate regeneration. Typically, these involve the establishment of a public-private body bringing together the public sector partner’s land and property assets, and the private sector’s funding and commercial expertise.

However, so far the vehicles have been purely public sector enterprises, leading to mounting frustration and concerns that the GPU is missing a trick. Although the GPU has had private sector advice on its pilots, the consolidation strategy in the pilot areas has so far been handled solely by central government, targeting departments’ ‘low-hanging fruit’.

“It’s fair to say we’re doing a lot of those moves internally in government at the moment,” says GPU chief operating officer Neil Warsop. “What we’ve been doing so far is working to consolidate the estate, to reduce the amount of buildings we’re in and get our own house in order. But then, as we move forward, we’ll look at how we can extend that out to working with the private sector.”

Warsop says that future private sector involvement in the GPU’s programme may eventually include joint ventures, but not before the logistics of such arrangements have been fully explored. “At this stage we’re not ruling anything out, but there are issues such as who controls budgets that we’re working through at the moment,” he says.

Private land, keep out?

According to Richard Rees, head of UK development at Savills – one of the property agents advising the GPU on the pilots – the private sector is champing at the bit to get involved. “The market sentiment is that there are pieces of government land or real estate that are not fit for purpose within the public sector that could be released to the private sector to stimulate development,” says Rees. “There is a real appetite from the private sector to get on with developing some of these assets, but I think there’s a building frustration about how you get to them.”

And this frustration is not just over the private sector’s inability to get its hands on valuable public sector assets. Other private sector players believe the involvement of the private sector, with its commercial nous and nose for efficiency, will be crucial to helping government realise the full potential of its property reforms in cutting public expenditure.

According to Jonathon Goring, managing director of property consultancy Capita Symonds, the savings made so far through lease exits are nothing compared to those he believes could be saved through “smart” use of government assets. “The GPU talks about £180m rental savings by the end of the year; but the real gains are going to be made on the efficiency side – where it’s billions,” he says.

This is where he believes the private sector can really add value: helping the GPU and departments spot ways of making the best use out of their assets, perhaps by looking for opportunities beyond their own estate. “Before [departments] decide they’re going to consolidate part of their estate, we may have a vital link and be able to help them think beyond their department to other departments, or about [working with] local government,” Goring says. “We might be able to bring links that enhance value, and apply some of our knowledge on shared services, use of accommodation and so on.”

Working with local government

This theme of central government linking with local government and other parts of the public sector on estate management was one that came across strongly earlier this month at the Public Property Summit, in which Civil Service World was a media partner. A number of contributors noted that with all parts of the public sector facing the same challenges – delivering better public services in the face of fast-falling budgets – there are opportunities for central and local government to work closely together and adopt a ‘one public estate’ approach to the use of their property assets.

The Department for Communities and Local Government has been trialling such an approach since last year in a series of ‘capital and asset’ pathfinder programmes across 11 local authority areas. According to Rosie Seymour, deputy director of local government reform at DCLG, the pilots set out to map all the public sector assets in an area and then formulate a plan on how best to use them that involves players from both central and local government. “To do that was eye-opening and helped people see what the opportunities were,” she says.

As the GPU takes its own reform programme forward, Seymour believes there are real opportunities for the unit to explore ways of using the public estate for the sharing of back office functions or co-location of related services. “The building up of relationships at a local level can open up more opportunities than if you just look at the central government estate on its own,” she says. “Looking at things just from a central government estate perspective is in a sense missing some of the opportunities for better rationalisation and making more savings because, yes, you might be consolidating into a smaller number of central buildings, but you might have been able to do even more rationalisation if you’d done more sharing with other bits of public sector estate.”

The GPU has in fact been working with DCLG on the pathfinders, but Warsop agrees there are further opportunities for this kind of approach. “There is no reason why we shouldn’t think like that,” he says. “There’s no reason why we couldn’t have different services in one building. It’s in the interest of users to have one-stop shops. That’s common sense.”

Yet there are some concerns over the extent to which the GPU, as a centrally-located body, will be able to function in this way. “My fears are that the GPU might operate in a way that’s divorced from local communities,” says Bob Baber, a former adviser at public estate managers CIPFA Property and now director of his own consultancy, Bob Baber Associates. “So in Bristol, for example, you’ve got a London-centric organisation that’s focusing on maximising capital receipts from the sale of assets in Bristol, but perhaps without taking into consideration local environmental, economic and social issues.”

Baber believes it is therefore crucial that the GPU works more closely with local authorities. “They should be talking to the local council about whether there’s scope in joining together and developing a joint plan that looks at the whole public estate,” he says.

Others echo Baber’s concerns. According to Stephen Leece, general manager for local and central government at geographic information service company ESRI UK, while there are undoubtedly huge opportunities for co-ordinated consolidation across the public sector estate, the GPU may not be in the best position to manage such a process.

“My concern is that this [consolidation] is all going on in isolation,” he says. “Each aspect – health, central government, local government – is being examined in the best interests of that particular group, but we may miss a trick in the process. The question is: is the new focal point – the GPU – going to be able to bring diverse interests together in a way that’s meaningful? The GPU has a challenge in bringing some quite divergent demands together.”

Poor data

One factor mitigating against the effective consolidation of the government estate is a lack of data: there are widespread concerns at the lack of a comprehensive, user-friendly database detailing the properties held by the public sector’s many different organisations. Information on government property is held in a number of different places and this, says Leece, complicates informed decision-making on what to do with that property. “Most of this information is sitting in silos in large government departments, so it’s very difficult to get that information quickly on whatever problem you’re trying to solve,” he says.

Information on central government property is stored on the ePIMS (electronic Property Information Mapping Service), but Goring says this “doesn’t do a lot for anyone”. Even its backers acknowledge that ePIMS is not very accessible. “It’s not written by property people for shared use of private and public sector,” comments Goring.

The DCLG’s pathfinder programme resulted in a demonstrator map plotting the central government estate with information from ePIMS, health, schools, public sport and leisure facilities, and local government data from about 80 councils. “It showed the power of having all the public sector estate on one map and seeing what that means visually,” says Seymour.

Leece believes that similarly detailed and transparent data on the public estate should now be made available for the whole country – not just to enable government to save costs today, but to ensure that the public estate is configured in the most appropriate way for future generations. “It’s important to get information out to allow people to make informed decisions,” he says. “It’s critical that the mindset of this project is focused on what we’re trying to do for the future – and not just looking at reducing the cost of ownership of property.”

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