Up in the air

In a radically changed public spending environment, local authority asset managers face an enormous set of challenges in delivering estates that are financially, operationally and environmentally sustainable.

Property currently represents around a fifth of all local authority revenue expenditure which makes it an obvious area of opportunity for councils facing an average of 26 percent cut in funding over the next four years. Many of them have worked hard in recent years to reduce their estate footprints, but the scale of these cuts will require a rapid recalibration of what is an affordable amount of property for them to be holding.

Asset agenda
At the same time the rapidly changing public service agenda, introduced through Total Place under the previous government, and now driven by place based budgets, localism, shared services and outsourcing will require the transformation of property portfolios to support these new service delivery models.

Asset managers must continue to ensure that buildings contribute towards carbon reduction targets and in this they face a complex delivery landscape of regulation and incentives targeting both the supply and demand for energy. This includes the requirement for Energy Performance Certificates (EPCs) and Display Energy Certificates (DECs) for public buildings, Part L of the Building Regulations which sets a target of 25 percent reduction of CO2 levels in buildings from 2006 levels, and a zero carbon target for all public buildings by 2018. After a false start in the autumn, the Carbon Reduction Commitment Energy Efficiency Scheme has been recast in the Comprehensive Spending Review as a pure tax or levy and will add an estimated £200,000 per annum to qualifying organisations.

What is green?
In suggesting how councils should be responding, the Leaner and Greener report highlighted a number of key themes:
Improving data quality and asset mapping – It is clear that many councils still lack adequate information on their estates and the means to interrogate and analyse it effectively, although the report highlights some excellent examples of asset mapping by neighbouring councils in the interest of identifying opportunities to consolidate and collocate across boundaries.
Driving better space utilisation – Evidence for local government is lacking, but even before cuts in staffing, the average utilisation of office space was likely to be in excess of the 12 sq m per person target set for Central Government. There is plenty of untapped potential for densification through re-planning space and adopting new ways of working
Controlling demand – A “departmentalist” approach to holding and managing property prevails in many councils and militates against holistic asset management – the report recommends more centralisation of control, and the introduction of corporate landlord models and internal charges that bring transparency to the cost in use of property and incentivises departments to try and release surplus space.
Seeking out collaboration opportunities – The report urges more effective collaboration between councils and other public services on the sharing of back office services, and the creation of new front line service delivery hubs. The report recommends this be driven through joint asset management boards and the creation of pooled asset vehicles, although the latter may prove a very long haul and a political step too far for many authorities.
Investing in sustainable solutions – Calculations provided by EC Harris for the report show potential cost savings of £190 per sq m per annum for a hypothetical retrofit scheme that improved a public buildings energy performance by three DEC bands,  of which energy, water and CRC savings are shown to account for £25-£30 per sq m

Financing the future
In the best examples significant financial, operational and environmental benefits have been delivered through a single project. The report highlights the example of  Southwark Council whose back office operations, dispersed across 20 different buildings, were successfully consolidated into a single new headquarters which  achieved a BREEAM ‘very good’ rating through a variety of sustainability measures including passive ventilation, a biomass boiler which meets 50 percent of heating requirements and exposed internal concrete frame which aids cooling. It also succeeded in delivering a hot-desking and flexible working solution on a six to 10 desk to staff ratio, an annual reduction in CO2 of over 1700 tonnes per annum, and running cost savings of over £3m per annum.

There are other exemplary projects of this kind, however the likelihood is that in the next few years the focus will be more on low cost, quick payback solutions and small to medium scale retrofits than on the kind of major long term spend to save projects as realisation values for surplus buildings are unlikely to support many major new build projects until the market recovers and the political risks associated with building “palaces for bureaucrats” will be considered too great by many authorities.

There are a number of incentives and financing schemes already in place for energy performance improvements and the funding landscape is developing from week to week. While the latest Salix funding window is now closed, this year will see the introduction of the Renewable Heat Incentive and in 2012 the Green Deal financing scheme for energy efficient boilers and insulation in both domestic and commercial buildings. The London Development Agency’s Re Fit Pilot has invested £7m in 42 public sector buildings, generating £1m per annum energy savings and it has also established the £100m London Green Fund to invest in waste and decentralised energy projects.

The relative energy performance of property will be an important decision factor in which assets to rationalise. While DECs provide a good snapshot of energy performance, technology enabled sustainability is where the market is heading and energy and carbon management software platforms for larger portfolios are available which can reduce time and cost of managing environmental data, assist with compliance and reporting, and help to verify the returns on investment for specific environmental initiatives.

To make properly informed decisions about the scope and timing of projects to improve energy performance, asset managers will need to become better informed on where the regulatory environment is heading, the real time energy performance of the buildings in their portfolios and how they can take full advantage of new funding options as the market continues to develop.