Government real estate and property portfolio

The Government is half way through the deficit reduction programme it began in 2010. Interviews conducted with senior executives in the local public services, as part of Deloitte’s research for the publication 'The State of the State 2014-15' suggest that they are justly proud of the way they have managed the first half of the spending cuts. To meet the target of eliminating the UK’s budget deficit by 2018-2019, a second round of spending cuts and cost savings will need to be implemented by the public sector. These are widely agreed to be significantly harder to implement than the initial cuts made since 2010 and risk, uncertainty and the prospect of organisational and service failure in the years ahead is a major concern for many.

The Government real estate and property portfolio can be viewed as a key enabler to achieve meaningful savings in the next few years and beyond. The Government estimates it has made annual savings of £600 million per annum as result of early exits from leasehold, PFI or disposals of freehold property since 2010. Furthermore the disposal strategy which has led to the sale of a wide variety of land and buildings, including offices, has resulted in over £1.4 billion in receipts.

Of the current 93.6 million sq ft estate valued at £348 billion, the Government’s Estate Strategy 2014 outlines a further £5bn or more of property disposals by 2020. This is also likely to reduce the current annual running costs which are approximately £20 billion per annum.

The case for a shrinking government estate is supported by a further projected 1 million public sector jobs cuts by 2019. The Government aims to improve the productivity of its workforce and ultimately derive greater efficiency from a smaller workforce. Part of achieving this plan will require better use of technology, exploitation of more flexible/ remote ways of working and attracting as well as retaining the necessary talent.

The main challenge remains a resistance to change in the public sector, with many executives concerned about the long term implication that cost saving measures will have on their organisations. Additionally, reducing the cost and increasing the use of vacant space will be a key aspect of an efficient estate and the public sector will need to consider ways to maximise space they are unable to sell or sublet.

There is a need for fundamental and lasting organisational change accompanied by a strategic rethink of the role real estate plays in delivering the public sector’s services. Improving the efficiency of the estate and promoting a modern and effective working environment are likely to be key factors in freeing up additional sites for disposal as well as generating long term savings linked to the running cost of the estate.

The Government’s vision, as set out within the Government’s Estate Strategy 2014, is to create an efficient, fit-for-purpose and sustainable estate whose performance matches the best of the private sector. Whilst the next Government may exercise its power to change the way the deficit is reduced, failing to eliminate it is not a viable option. As such it is key that the implementation of the Estate Strategy is successful.

Deloitte Real Estate have recently advised many central Government departments and local authorities on the rationalisation of their estate and on strategic changes to improve the operation of and management of their estate. This includes the MOD, DWP, Department of Health, Kingston County Council and Edinburgh Council.