Now is the time for governments to explore property savings
Canberra’s most recent office vacancy rate is sitting at 10%, providing some good news for government tenants. Stephen Oxford, the lead of Synergy Group’s Property practice, explains why the current market conditions make it the best time for government property managers to act – with a strategic, realistic plan for the future.
The Property Council of Australia’s latest office performance report, released in August 2020, indicates a historically high vacancy rate of 10.1% for Canberra, compared with the long-term average. The current national capital vacancies, combined with about 79,000 square metres of extra space due in the Canberra market over the next two years, means there is pressure on rents and commercial competition is high.
This is great news for government entities, which already make up about half of the commercial tenancies in the ACT. “The market conditions are favourable for tenants, and should remain so until 2023,” says Stephen. “New stock is increasing vacancies, so the competitive tension will benefit government.”
For government entities to make the most of the situation, Stephen says now is the time for tenants to act, but to act with the future in mind. Specifically, government property teams must think beyond replicating their current requirements, particularly given the new world of remote working.
Where do you work?
Thankfully, government agencies have resisted the temptation to make short-term, reactive property decisions in response to Covid-19, instead, offering flexible, practical and innovative approaches to keep staff safe. “Covid-19 has certainly shown the public sector that they don’t need to allocate every person a desk,” says Stephen. “An unexpected outcome from Covid-19 has been the government’s ability to enable a 140,000 strong workforce to work remotely.”
With 25,000 vacant work points in the Commonwealth portfolio – 12,000 of them in the ACT – that’s potentially 170,000 square metres of inefficiency.
“With people’s work needs changing even more, we have to be mindful of the vacant space left in government buildings and offices, which is already costing the government around $162 million a year. With only a third of Commonwealth entities complying with the government’s existing efficiency target of 14 square metres per occupied work point, we could easily find $300 million savings a year.
“New leases are typically 35% more efficient than the lease they replace, due to improved density and workplace efficiency – and that was pre- Covid,” Stephen explains.
“Imagine the savings if agencies embraced emerging work practices and allowed enough time to plan for a realistic footprint? There is an opportunity to reduce a further 25% of office space if our workforces continue to work remotely.”
“Now is the time to not only do something about the inefficiency, but to embrace the new ways of working that Covid-19 has unlocked, and leverage favourable market conditions,” says Stephen.
Did someone say savings? What CFO doesn’t love the word ‘savings’?
“If we were to follow private sector trends, and use a density of 10 square metres and a ratio of seven work points for 10 staff, we could cut the portfolio in half, relinquishing over a million square metres and saving $600 million a year in rent costs alone,” says Stephen. “That’s double the savings that Operation Tetris achieved over a 10-year period!”
“The government has a unique opportunity to evolve its property footprint, and can easily find millions in savings.”
“When you consider that the government has contributed $333 million to Covid-19 vaccine development, this quantum of savings becomes very meaningful,” remarks Stephen.
Government agencies and departments are required to do an entity-level property plan under the Commonwealth Property Management Framework. “This is the document that aligns your workplace, financial and property needs to form a strategic approach to lease procurement,” says Stephen. “Tenants who get this right will save significant money.”
“By working with CFOs, COOs and other parts of the business, we get to understand our government clients strategically, so we can help them find a holistic business solution that supports their workforce for years to come.”
The future starts today
Stephen is reflective of the unexpected workforce changes brought about by Covid-19.
“The combination of favourable market conditions and emerging work practices means we have a unique opportunity to evolve the Commonwealth’s property footprint to be an example that the rest of the world can follow,” says Stephen. “If you want to transform the public sector, you need to also transform the environment that the workforce is in every day.”
Property teams can start defining entity-level requirements for the future by talking with staff today. “We have yet to scratch the surface and the opportunity for improvement is really exciting.”
