Originally published July 2022.

The public sector is the largest UK landowner and space occupier, with local authorities owning and managing the majority of the real estate assets to meet services to the community. As central funding of these services reduces and the knowledge economy is changing the way we live, local governments are looking at more efficient and effective ways of managing their real estate operations and creating investment value to bridge the gap between funding shortfalls and the demand for public services.

The challenge for many local governments is to support the numerous community space requirements within a fit-for-purpose real estate framework that may have only one or two investment-grade income generating properties. In part, this can be achieved by a proactive approach to provide local destinations, blending traditional operations with features of the emerging knowledge economy. This would require active specialist property management, covering asset and business operational expertise, which can be provided by leading property consultants at a significant cost.  

In detailing this, many local authorities are focused on cost savings and so an in-house property management team may not have the time, knowledge and tools to effectively manage and improve the performance of their property portfolio, especially the investment assets that could benefit from hands-on customer-focused space management.

Added to this at a corporate level, several local authorities are investing in commercial properties as a way to generate long-term stable income streams, although past practices to date have highlighted narrow portfolio diversification, management challenges, fee leakage and limited awareness of the knowledge economy on future real estate returns. As RICS (2019) noted “… councils are buying into future business models and market dynamics of the occupier as much as – if not more than – into the bricks and mortar.”