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Property exchanges can save local councils money and improve services

Owen Carlstrand and Karen Cherrett


30 March 2011

Efficient property asset management offer local authorities cost effective opportunities to make better use of their space

The Westminster Sustainable Business Forum's report, Leaner and Greener: delivering effective estate management, recently set out a number of recommendations on how local authorities can save money by collaborating with public and third sector partners to manage their property assets.

Traditionally property disposals have been used to generate cash and drive change in the workplace; Newham's move to offices in London Docklands and Brent's ambitions for a public sector campus near Wembley are good examples. Selling older buildings can also lead to reductions in energy costs, though this is often over significant payback periods. However, for most councils such sales are unlikely to realise significant net gains as any funds raised are generally needed to acquire new space.

A more ambitious and effective approach may lie in a carefully designed property exchange involving the best of public and commercial sector expertise. Such schemes would make it possible to exchange inefficient and outlying buildings for the lease of a single, modern site in a convenient, publicly accessible location, without the need for a significant amount of cash investment. Each party would achieve its goals in other ways.

This thinking is not entirely new. Many long term public-private partnerships with local authorities, such as those in Lincoln, Southampton and Milton Keynes, involved commercial providers taking on and refurbishing council buildings to occupy them as business centres. Equally, property consultants and developers specialising in the public sector have proposed collaboration to release value from the public estate, such as the promotion of a regional government campus to move civil servants out of the capital. However, the initial enthusiasm has inevitably been eroded by suspicion of each party's motives, a wariness about releasing the asset base (seen by some as selling the family silver) or reliance on early agreement of a complex, asset-backed funding vehicle. It is little wonder that many schemes have fallen by the wayside.

An asset exchange programme requires the authority to offer a reasonable level of incentive to the potential commercial partner, and no local authority has seemingly yet had the courage to test this route. But if ever the time was right to be ambitious, surely it must be now. Local authorities need to be open to a proposition where the absence of cash now is compensated for by the assurance of cash later. The provider would supply the new authority with premises, and take immediate ownership of the various vacated properties, with approval to develop them into rent or sale-generating assets. The authority can, and rightly should, apply appropriate constraints on what is permissible such as securing a level of affordable housing into any development, ensuring any regeneration is consistent with its wider urban renewal strategy, as well as setting specific carbon reduction and sustainability targets.

It would also require a mindset shift within authorities to accept that leasing can offer benefits over ownership. In this climate, leasing ought to be an attractive option as it is increasingly difficult to justify the huge capital sums tied up in public assets at all, let alone such unproductive assets.

The transaction needs to be underpinned by a process for determining fair asset values and acceptable commercial performance over and above compliance with public procurement protocols. Both parties would perhaps benefit from using qualified but visibly independent third parties to manage these issues. However, none of these problems are insurmountable, as long as there is sufficient common interest and clear incentives to make the scheme work. That common interest is there, as developers are struggling to find good sites in many boroughs and facilities managers, having invested heavily, now need to secure the usage of their buildings that will deliver returns.

The Leaner and Greener report demonstrates that local authorities have recognised the need for corporate asset management, and that tools like customer insight data and GIS mapping can help plot the potential scope for asset rationalisation and sharing. However, the size of the prize could be much larger if the sector not only worked to bring together the best of its own expertise but also invited the best of the commercial sector to engage in early and developmental thinking around these schemes.

Local authorities need to cast aside their suspicions; understand their future needs; and be brave enough to invite others to help draw up a clear vision of how asset exchanges can leverage more from the public property portfolio while helping regeneration, reducing costs and enhancing the local community.

Owen Carlstrand is a business transformation specialist at PA Consulting and Karen Cherrett is a local government specialist at PA Consulting Group

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