Making local authority property decisions through data
Updated: Dec 15, 2022
Professor David Higgins, School of Engineering and the Built Environment, Birmingham City University
Tags: Local authorities, asset management, data sources, real estate portfolios
Output type: Research briefing
Target stakeholders: Asset managers, developers, local authorities
"Wyndham Road tower blocks and Castlemead" by sarflondondunc is licensed under CC BY-NC-ND 2.0
What's the issue?
Data is so important to managing real estate. It is the platform for building decision making that covers healthy environments, social considerations and financial returns. Often overlooked, these real estate benchmarks are critical for the UK public sector, especially as they are the UK's largest landowner and tenant with real estate assets (including land) of approximately of £406 billion. On past evidence, just below two-thirds is held by local government, whilst the remainder is held by central government and public corporations.
In highlighting, the size of the local government property portfolio, the public sector traditionally operates on a different operational platform to the private sector. As often, government real estate premises form part of important services to the community alongside managing real estate investment grade assets. Figure 1 shows the conceivable range of managed local authority real estate assets.
Figure 1: Local authority real estate universe
Source: Higgins 2022
In Figure 1 highlighting the variety of local authority real estate, local governments face intense pressure to manage and deliver social services to a population which is growing and ageing concurrently. Alongside this, local governments have sought to offset central government funding reductions by more efficient and effective ways of managing their operations and assets. To do this, a key element is the collection and analysis of data and information from the numerous buildings they own and occupy.
The challenge is the composition and size of local authorities’ property portfolios, as they can vary depending on population and location. Furthermore, it is recognised due to limited resources, that the level of individual property knowledge and performance data in local authorities property portfolios can be sketchy at best. This can lead to underutilised, poorly managed real estate with limited opportunities for local authorities to make sound commercial decisions.
For a snapshot of a typical regional local authority property portfolio, the following is an overview of a reviewed undisclosed local authority as at December 2020, see Table 1.
Table 1: Typical local authority real estate portfolio
Source: Higgins 2022
Table 1 shows a typical regional local authority real estate portfolio, comprising 522 property assets with an approximate value of £478 million. Managing the property portfolio must be a challenge as on the provided valuation information, there is opaque information on 30% of the properties and those which are valued, over 65% of the properties are below £5m with non-core representing close to 70% of the portfolio.
In the current cost-conscious operating environment, the complexity of scale and the different classes of commercial real estate would test many local authorities, as they look to provide cost savings with low level management service including limited data collect, to overview social amenities on a day-to-day basis.
Whilst the diverse portfolio is overweighted towards providing space for community services, the value of the two core prime located properties are above £20m and represent more than 10% of the property portfolio value. This rises to 23% when excluding the Education property portfolio as many are managed by the Department of Education and School Boards.
In demonstrating the challenge for local authorities to support the provision of community services within a fit for purpose real estate framework, there is a requirement to add value to those income generating properties which form current and future investment grade assets. In part, this can be achieved by a proactive approach to collecting property, facility and occupier touch point data of the investment grade buildings and so provide a destination, blending traditional operations with features of the emerging digital economy.
This would require a local government rethink, where past location decisions were made independently and may not reflect synergies across provided services. Increasingly, data is critical, as prime urban locality of defined community services can offer value with the emergence of the knowledge economy as creating leverage to the performance of a real estate investment grade assets.
In highlighting the public sector complicated relationship with real estate, solutions can be achieved to create and add value to local government extensive property portfolios. The current challenge is to capture this real estate opportunity provided by community services and the emerging knowledge economy in an undervalued fragmented local authority sector which services an important part of the UK economy. The first step is for local authorities to implement a co-ordinated strategy to identify and collect relevant building data that can assist in the design, delivering and transformation of public services. This can improve outcomes and drive efficiencies for the communities they represent.