by Martin Avis, Virginia Gibson, Jenny Watts
Managing Operational Property Assets(*), published in November, was the culmination of 18 months’ work studying major owners and users of property for whom property is not a primary business function. The study was initiated in the light og growing concern that property assets were not being efficiently and effectively managed by this group, and was supported equally by sponsors from the professions, public- and private-sector organisations.
The main purpose of the study was to obtain basic data and a broad picture of the current UK situation regarding management of operational property assets for all types of major property owners or users. Some 800 questionnaires were sent out, 230 responses received and in-depth interviews held with 51 organisations. The full spectrum of private and public sector organisations was included and almost 150 individuals interviewed. We are very grateful to them all for their cooperation.
The results have considerable significance for the senior management of organisations and most property people. More than half the responding organisations claimed to have property assets worth 30% or more of their total assets. The total estimated value of all the respondents’ property was at least £110bn. This confirmed the authors’ view that property is a valuable resource which needs to be managed in order to ensure that it is being used efficiently and effectively. It is clearly one of the main resources, along with money and people, that organisations have available with which to achieve their overall objectives.
The report is structured around the main topics of organisational and property objectives, organisational management structures, information systems, performance monitoring, property management in practice and ends with conclusions and recommendations for the way forward. This article necessarily touches only on some of the issues most pertinent to property people.
The differences between the public and private sectors were clearly an interesting aspect. The broad findings were that, despite the obvious difference in objectives and some details, there were considerable areas of comparable performance. The weaknesses in terms of the organisations’ attitude to property and the implementation of its management were similar in both sectors. The majority of the organisations took property matters seriously only when under severe cost or profit pressure on their main function/activity.
One of the findings was that the majority of organisations did not clearly establish property objectives as part of their overall objectives, and in many the more general organisational objectives were neither clearly expressed nor widely conveyed.
Significantly, the three separate functions of landlord, agent for occupiers, and provider of general property services were not clearly differentiated in the majority of organisations, creating conflict in implementation of the management of property assets.
The Audit Commission, in relation to local authorities, have been stressing the need for this functional separation, but there was little evidence of implementation of their recommendations. The private sector was equally liable to confuse the functions, with only retailers showing significant evidence of having separated the landlord and agent functions, often by establishing separate companies for the ownership of their freehold and long-leasehold property who then rent it back to the retail operators.
Operational objectives understandably dominated decision-making, but often without the impact on property assets having been explicitly assessed. Various examples were given that demonstrated some operational managers’ lack of understanding of property: carrying out major refits to premises held only on short leases and developing new facilities sited in a position that prevented access and diminished the value of other property assets were typical examples.
Business and political decisions tended to have shorter time-scales than are normally necessary for property. The majority of organisations strategically planned for no more than five years ahead and frequently for only one year in any detail, which made it difficult to incorporate property into the strategic planning process.
Most organisations, accordingly, were only able to react to, rather than plan for, property matters. This was summarised by the comment of one senior property manager that his organisation “was firefighting, not planning”! Another common problem compounding the situation was that senior managers were too busy with day-to-day work to think ahead.
There was a wide variety of structures, and no apparent optimal approach. The structures were influenced by the diversity and importance of the type of organisation, its corporate culture and the amount and range of property involved. One common theme was the concern with centralisation and devolution of property management responsibilities, but little detailed analysis of the effectiveness of structures had been undertaken, even by those making changes. It appeared that the incorporation of property functions within general centralisation/devolution moves were being operated as acts of faith or political dogma, rather than on the basis of quantified analysis.
The position of the head of the property department within an organisation’s hierarchy was felt to be likely to reflect the importance that the organisation places on its operational property assets. About half the questionnaire respondents supplied organisational charts. Analysis showed that the heads of central property groups were generally found at second- or third-tier level. In only two private-sector organisations was it clearly stated that the head of the central property group was on the parent company board. Where the property head was at a third- or fourth-tier level they generally reported to the finance director.
The interviews indicated that the position in the hierarchy does not necessarily reflect the power or influence of the head of property: while they were frequently at the same level as operational department heads, property heads often did not appear to have the same weight. It was evident that in most organisations property is considered a subsidiary function.
This highlights an important issue — the level of understanding of property by operational managers and the understanding of operational matters by property managers. There was clear evidence of problems on both sides. With the current trend to devolve property functions in many organisations, property education and awareness is going to be necessary for a much wider range of operational personnel. Equally the understanding of operational requirements will be more difficult for the fewer remaining centralised property managers.
The majority of organisations were dissatisfied with their property information systems. Most had at least partially computerised, but were unhappy about one or more of the main elements: the design, implementation, usability and/or quality of data. Amounts of money varying from £10,000 to £1.5m were being spent on “improving” the systems, but mostly without any detailed assessment of the cost/benefits of the changes. The value of property information appeared to be underestimated by most senior management.
Typically, information system changes had taken place on the initiative of a single individual. There were often problems with incompatibility of different systems within the same organisation, failure to transfer existing data on to new systems adequately, and abandoning the new system if the initiator left.
The whole property information systems issue was frequently clouded by the lack of understanding between property, finance and information technology specialists, all of whom should have an input into the development of such systems. While there were many interested advisers, such as hardware and software sales people, there appeared to be no readily available disinterested advice on information systems.
The monitoring of property and property personnel was not being undertaken adequately in the majority of organisations and this must reflect a lack of appreciation of property’s contribution by key decision-makers.
Published accounts for most organisations did not satisfactorily record property assets. The public sector in particular felt that their recording of property assets was of no assistance in monitoring their effective and efficient use. The majority of organisations were, more disturbingly, also unable adequately to reflect the contribution of property to organisational performance in their internal property management accounts, frequently because they were not aware of the true capital or annual opportunity cost of such assets.
The separate nature of capital and revenue budgeting in most organisations contributed to expenditure and revenue decisions not being related to value and return on property. The most common evidence of this was the tendency in all organisations for operational managers to cut maintenance expenditure as one of the first items in any organisational cost savings. This was well expressed by one interviewee, who said: “if you fail to deal with a maintenance problem requiring revenue expenditure it will eventually become bad enough to be classified as a capital project”. There was little evidence of any real analysis of the advantages and disadvantages to organisations of such revenue/capital trade-offs.
Nearly two-thirds of the organisations reported significant changes in their property portfolios in the last five years, yet monitoring of use of space was carried out by only a third.
While the majority acknowledged the importance of property in the delivery of their main function, very few had any measure of how it contributed to or detracted from the overall performance.
Not only was property itself generally poorly monitored, but few organisations attempted to assess the performance of their property-management functions. The majority used consultants for at least some functions, while the size of in-house property units varied from zero to several hundred, even between similar organisations with comparable property holdings.
The monitoring of both consultants and inhouse departments was done — if at all — in a highly subjective manner. Consultants were selected on the basis of professional knowledge and expertise, horses for courses, reputation, ease of access to senior staff and diplomacy. Several people outside the survey group also stressed that it is often “to let someone else carry the can”. Half those using consultants estimated that internal time spent on property matters would increase by at least 15% if they were not used. However, their appointment and monitoring was rarely subjected to formal assessment procedures, though there was some evidence that this is changing.
In the few instances given of formal monitoring of in-house property staff, the methods mostly revolved around assessing the fees saved. Fees were mostly based on the in-house staff’s perception of what consultants would charge. Factors such as quality, security, availability and knowledge of the organisations’ requirements were seldom overtly measured in an objective way.
The conclusion of this study of the current state of the management of operational property assets is, therefore, that property clearly is a significant asset for most organisations, but it is not being given appropriate priority by key decision-makers.
And property people are not articulating the importance of property considerations sufficiently convincingly for operational managers to take them more seriously.
The way forward is for organisations to analyse their requirements in relation to managing operational property requirements more carefully and for property people to improve their communication skills and persuade key decision-makers of the added value and cost savings of efficient and effective property asset management.
Two illustrations of effective property contribution to organisations interviewed help to underline the potential benefits of better property asset management in its broadest sense. A major company reorganised its use of property in central London and was able to realise £250m in capital from disposals and make annual savings of tens of millions of pounds.
Another company considered that the work of their head of property on a committee advising on the new business rates legislation and implementation will save them several million pounds a year when the new system comes into operation.
Clearly, good property personnel can produce examples of savings and added value in all aspects of property management from broad strategy to detailed facility management.
The current situation may be discouraging, but the opportunities for property people — public, private, in-house and consultants — are great if they demonstrate the advantages to be gained for organisations by treating property as the significant asset it undoubtedly is.
(*) Managing Property Operational Assets, by Avis, Gibson & Watts (University of Reading, £30 inc postage in the UK). Obtainable from: The Department of Land Management, University of Reading, Whiteknights, P O Box 219, Reading RG6 2BO.
