Should Local Authorities own their property?

Why do so many local authorities insist on owning the majority of their property portfolio, particularly when they are facing their biggest financial challenge for a generation?

There is little commercial rationale for being wedded to corporate or operational property. Take the example of private sector businesses such as hotel and leisure chains which run a property operator model that enables them to operate successfully from leased or landlord managed buildings.

Local authorities will need to be more innovative to manage their shrinking financial allocation at the current time when many are saying that demographic population increases and rising local community needs and expectations are putting unbearable pressure on frontline services. Something will surely have to give.  It is no secret that property is the largest financial asset and second highest cost after people resources -  so why not think differently about how it is owned, not just managed?

Despite these cost cutting measures many authorities are still falling considerably short of their savings targets and are struggling to find the solutions to meet their anticipated forecasts.  Minor delays have a significant impact, the need for pace is obvious.

The last taboo

The ownership of built assets is still one of the last areas for fundamental review and even though many councils point to the fact that they have rationalised their assets, sold off surplus stock, and have improved utilisation of office space, there is a general reluctance to consider wholesale transfer of owned assets into the private sector.  

There are some examples of this in local government, such as in, Barnet, Bexley, CamdenSouthwark and Tower Hamlets, but there has not been wider acceptance. 

The London Borough of Bexley, for example, has had a longstanding objective of rationalisingits office space and progressing modern work practices across its core office based staff. This will see its administrative portfolio reduce substantially in floorspace by about 30% and the number of large office buildings reduced from four to one. 

However, the programme is crucially about much more than rationalising Council office buildings.  The key to effectively regenerating and unlocking the value of its ageing and costly centrally located office complex has been to work in partnership with the private sector to develop a consolidated office site at the heart of the community. Putting in place a strategy for transferring the ownership of its  property has enabled the development of modern, fit for purpose civic facilities that are sustainable, considerably more cost efficient to operate and adaptable to future needs.

Bexley’s initiative acts as an enabler to a far more fundamental shift in the way the Council works and has allowed the Council to design and ultimately deliver tangible, service focussedimprovements specifically for their customers.

Room for improvement

However these are fairly isolated examples, and there is still considerable room for improvement with the real potential to generate cash to offset the effects of the latest budget cuts. Something will surely have to give soon; but one wonders how long it will take for the imperatives of the economic storm in local government to force a change in attitudes to unlock the intrinsic value tied up in their estates.