A sustainable approach to property rationalisation and cost savings Sustainability---the new dynamic

Transcription

1 A sustainable approach to property rationalisation and cost savings Sustainability---the new dynamic NHS Sustainable Development Conference 14 th February 2012 John Pike BSc FRICS

2 CRE Associates Founded by John Pike and Ray Jenkins Previously property directors of BT, Network Rail, HBOS plc, Honeywell and Lloyds Banking Group We now offer objective strategic property advice to the corporate and public sectors based on that experience. We have a particular a focus on developing environmentally aware portfolio reviews and work place strategies and executing the resultant property rationalisation plans and cost efficiency programmes John Pike also acts as Secretary General of the International Sustainability Alliance 16m m2 of floor space; 3bn of running costs; savings of 650m pa.

3 The right property strategy Should Optimise operations; Minimise costs/identify rationalisation opportunities; Have resilience to cater for future operational requirements; Anticipate/comply with statutory and legislative frameworks; and have sustainability at its core

4 Sustainability is not an optional extra Buildings account for 40% of total European energy consumption and 36% of CO2 emissions; The EU energy roadmap defines the regulatory framework A raft of legislation planned for next 5 8 years; EPCs/ DECs will become mandatory for all buildings; Costs will become a significant operational consideration; CRCs will define reputational risk and drive compliance; Smart organisations and companies are electing to act voluntarily

5 Potential Impact on value ECEE Report Energy performance is the major factor likely to create additional value today ING Real Estate The reversionary potential for unsustainable buildings will become negative British Council for Offices -60% of private sector buildings in London will become obsolete as government steps up energy legislation Increasing evidence that energy efficient buildings depreciate more slowly, have higher market values not just lower running costs Some buildings will become unsaleable

6 The NHS Estate SIZE 25m m2 of occupied floor area - the largest building portfolio in Europe VALUE 36 billion ( buildings and equipment) VACANT/UNDERUSED 12.5% ( over 3m m2, as estimated by Treasury) RUNNING COSTS Estimated at 6.75 billion per annum ENERGY COSTS Estimated at 500m to 600 m per annum CONSUMPTION NHS facilities produce 4 million tonnes of CO2 emissions a year

7 The 20bn Challenge Property's Contribution ENERGY RELATED The NHS is targeted to reduce emissions by 10% based on 2007 data by 2015 Can probably save c10% of current energy costs ( 60m pa) by focusing on managing consumption/ensuring charges are accurate Potentially a further 120m pa by targeted investment But the largest impact comes from having a smaller portfolio FOOTPRINT RELATED Operational initiatives which will move the patient away from hospitals into the community will create real estate opportunities Opportunity to right size the portfolio - important to know which to retain/release Ensure underlying utilisation is efficient benchmarking helps Measurement identifies opportunity - objectivity drives efficiency

8 BT plc Effective Property Strategies HBoS plc Dated Estate; poorly utilised; inflexible layouts 85 m sq ft over properties 1.2bn pa to run estate and increasing 20% UK office population in central London driving over 40% of office costs Modernised estate Fewer but larger new regional hubs Layouts/design supported rapid change 60m sq ft around 7000 properties Agile working widespread best in class utilisation rates 800m pa to run estate and stabilised Showcase for new technology Increased green agenda Sale & leaseback raised 2.38bn Fragmented, dispersed estate legacy of Halifax/Bank of Scotland merger 400m pa to run estate Capex spread too thinly 20% of administration expenditure directed to property Agile working (4 workstyles) reduced floor space x requirements & supported diversity xrationalisation fewer buildings in key locations x Cost leadership transparent re-charging of asset to reflect real opportunity costs Strong sustainability driver reduce energy costs and remove those buildings unlikely to comply (at reasonable cost) with future legislation Detailed strategies will be different but execution should be consistent

9 Making it Happen GETTING ENDORSEMENT AND TRACTION IS KEY Business Plan and not a Property Plan Programme not a Project ; full benefits may come later and take time to work up. Scoping the financial size of the prize makes it compelling and helps secure commitment to essential up front funding Identify the wider benefits ( not just cost) Identify senior sponsors Develop and manage a pan organisation governance structure Regular progress review points helps drive actions and unblock jeopardies Regular and consistent communications ( internal and external audiences) reinforces ongoing commitment to the programme

10 Can flexible working help? Improving utilisation in back office areas such as administration can typically achieve a 25% reduction in space required with corresponding reduction in carbon footprint; Supporting clinical staff to be more mobile reduces need for consulting rooms; IT infrastructure allows uploading of data from remote locations and reduces need to travel back to office/hospital base.

11 A changing landscape for NHS Property The biggest driver for greater efficiency is the 2015 cost challenge Creation of a Prop Co. should drive the pace of change Prop Co. likely to set efficiency targets which encourage improved utilisation and release of surplus estate If the Primary Care Estate becomes a tenant, it will be important that it leases only those properties it needs and can afford without a strategy this cannot be identified New Foundation hospitals need to consider carefully a strategy which fills the core sites and rationalises and releases the outliers Property under intense scrutiny

12 Conclusion Ever increasing regulation and tougher standards Continuing need to future proof buildings against stricter building standards and rising energy costs. De-risks investment and reduces costs A strategic approach to your property assets demands a full understanding of the sustainability implications Creation of NHS Prop Co. Will have an impact which needs to be evaluated NHS cost challenge requires strategic portfolio reviews an opportunity to place sustainability at the core