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07 Oct 2022

Report finds ‘significant level of uncertainty’ over State’s property portfolio

Report finds ‘significant level of uncertainty’ over State’s property portfolio

The Government has been warned of a “significant level of uncertainty” over the scale and nature of the State’s office accommodation portfolio, because of a rise in remote working.

The spending review papers for 2022 states that high levels of blended working in government departments poses a challenge to the Office of Public Works (OPW) over how the state property portfolio should be managed.

In the report, the Irish Government Economic and Evaluation Service (IGEES) said the challenges come at a time of rising rental pressures, expansion of civil service numbers, and a rise in rental costs across the commercial office sector.

It said that the Programme for Government’s commitment to enable 20% of public service work on a remote basis will lead to high levels of blended working over the long term.

“There is now a significant level of uncertainty over the scale and nature of the State’s office accommodation portfolio over the long-term, due predominantly to the potential impact of blended working arrangements across government departments and agencies,” the report stated.

“This poses a particular challenge for both the OPW and its clients to determine how the office accommodation portfolio should best be managed.

“It will involve taking account of changing work practices and building on current initiatives for investing in agile workspaces, for example digitally enhanced, predominantly open-plan working environments with collaborative spaces and significantly reduced use of cellular offices.

“This will enable the evolving accommodation requirements of client departments to continue to be met in a cost-effective manner, as property solutions provided will enable them to meet their business objectives, including through enhanced levels of digital service delivery.”

The IGEES also looked at whether it is more cost-effective to rent or buy property to meet office accommodation requirements.

It said that based on current data, the cost of building or purchasing is lower than the cost of leasing for long-term requirements.

Over a 40-year period, the cost of building office accommodation in five locations reviewed is between 29% and 38% lower than the cost of leasing accommodation in the same areas when the residual value of the buildings and sites are taken into account.

The “breakeven points” at which the cost of leasing exceeds the new build and purchase options extend above 20 years in most cases.

This demonstrates that leasing can be a cost-effective solution for short- to medium-term requirements, the report said.

Based on the analysis, if the State requires office accommodation for long-term use, it may get better value for money by building or purchasing office accommodation instead of leasing.

However, the report warned of significant challenges to buying property over leasing.

“These can include the scale and timing of the up-front resources needed for this and possible limited availability of suitable sites and buildings for acquisition,” it said.

“Other factors include the urgency associated with accommodation requests, the lead-in time for delivery of the requirement, the location preferences of the client departments and the resources needed to manage the design and delivery of a new build solution.”

It said that while purchasing property is the least costly option for the Exchequer, it was difficult to state if it was a “viable” option because of the uncertainty in finding suitable buildings for sale, the need for significant upfront funding and the prevailing market conditions.

It said that building new property was a viable alternative to leasing if the State can acquire suitable site for development, the funding is available and is intended to meet long-term accommodation needs.

“This analysis demonstrates that purchase/new build has the potential to be a more cost-effective solution over the long-term,” it added.

“Accordingly, all options should continue to be actively considered on a case by-case basis in the context of the modernisation of the office accommodation portfolio in line with the OPW Estate Strategy.

“The overall conclusion that can be drawn from the analysis is that, when the State is acquiring significant property for office accommodation, building or purchasing should be considered along with leasing/licencing, particularly if there is a long-term requirement subject always to the prevailing market conditions.”

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