Intense inter-agent competition is already piling downward pressure on fees. But as if that were not painful enough, advisers pitching for public sector work are coming under further pressure to erode margins.
Next week sees the Government Procurement Service launch briefings on what it expects from the agents that it appoints to its real estate services panel.
A new four-year contract begins in November, and the Cabinet Office is understood to be looking for 20% savings on fees paid to members. It’s not the first time cuts have been expected, with 15% falls already delivered in many cases.
It sounds harsh, unsustainable, perhaps exploitative: a recognition that work is thin on the ground and a suggestion that recipients should be grateful.
And in truth, wouldn’t we all take the same approach? The potential prize for government – and by extension, all of us as taxpayers – is huge.
The GPS manages £7.6bn of customer spend, working with 14,500 organisations in town halls, Whitehall, devolved assemblies and the not-for-profit sector. Saving 20% of that bill – some £1.5bn – is a prize worth pursuing.
But care is needed. With agents cutting fees to win contracts from competitors, and cutting again to satisfy the new public procurement environment, it’s easy to see how quality advice may not be profitably provided.
It may affect the number of firms who choose to bid.
And for those that do, it could affect the quality of the minds applied to contracts.
Ultimately, that affects the quality of the advice given.
Realise value for taxpayers, yes. But drive fees down too far and the government may realise short-term savings, but only at long-term cost.
League table
There’s a new name at the top of the EGi deals league table (p31). And it’s one that may not surprise.
Jones Lang LaSalle has unseated Lambert Smith Hampton, the winner of our Deals Competition for six consecutive years. In fairness, King Sturge had been closing in on LSH even before the firm’s acquisition by JLL.
Nevertheless, based onnationwide transaction volumes across all sectors in 2011, the combined entity left rivals for dust.
There’s been movement in other sectors, and we have introduced a new investment category which will set tongues wagging.
But most encouraging of all is the fact that niche players are performing strongly in their home regions, with the big boys looking distinctly second best in many markets.
It’s refreshing that in an intensively competitive market, size isn’t everything. There’s more analysis at www.estatesgazette.com/deals
Mark Pears
Quietly, and over a period of years, Mark Pears has acquired a reputation for making better calls than most in this market. It’s property’s loss that, more often than not, he chooses to not to talk about them.
This week, he makes an exception. “I don’t think RBS is in quite as bad a position as some people think,” he tells EG this week (p58).
Pears was speaking well before this Thursday’s announcement that Royal Bank of Scotland has reduced its exposure to commercial real estate by around a quarter in the two years to 31 December, and at a rate that is accelerating.
The bank posted a still-painful £2bn loss, yet the share price climbed. So Pears had a point.
Over the year ahead, he sees pain but not disaster (usual macro caveats apply). But more than anything, he sees hush.
“If you assume there’s going to be no run on gilts, then with interest rates at zero, most vendors, unless they are really forced to, will just sit on their hands.”
It’s a more realistic view than some, and it’s one that is all the more believable for it.
