Wellington 15 October 2013 - Latest research from CBRE New Zealand indicates that the Government's property rationalisation programme could have limited short term impact on office vacancy levels in Wellington.
CBRE’s latest Wellington ViewPoint reveals that although Government’s Property Management Centre of Expertise (PMCoE) plans to reduce central government office occupancy by 25% (130,000sqm) between 2012-2019, it will be split into two tranches.
The PMCoE was set up in 2011 to inform an ‘All of Government’ approach to strategy and decision-making on governmental office space use that could see potential savings of around $110 million over rollout of the programme.
Iain Shaw, CBRE’s Senior Research Analyst in Wellington, says that the expected limited impact is due to a number of factors:
“Firstly, a number of impacted buildings are likely to be withdrawn from stock for large scale refurbishment following the departure of existing central government tenants, reducing initial vacancy impact in short term.
“Central government agencies are likely to continue to cluster within better quality office stock in Wellington CBD, whilst small agencies occupying older, less efficient space are likely to be encouraged to co-locate in more modern, efficient spaces.
“We believe that around 156,000sqm (30%) of government occupied stock in Wellington CBD is unlikely to relocate before the end of the Government Rationalisation programme in 2019 for a variety of reasons, including signing long term lease agreements relatively recently; occupying stock that is likely to already meet requirements, or being unable to move from existing space for operational reasons.
“While this space may still be used more efficiently as per the Rationalisation plan, it may not necessarily result in an increase in vacant stock. Therefore, possible Tranche 2 movers are likely to come from the remaining 240,000 sqm of space currently occupied by central government agencies within the CBD.”
In addition, Shaw says that Grade A stock currently occupied by possible tranche 2 movers is dominated by larger agencies (49% have an overall footprint in excess of 10,000 sqm) across a selection of modern buildings within the CBD.
As most of these are already likely to meet stated PMCoE efficiency requirements, central government tenants will generally maintain leases within these buildings going forward, especially given the paucity of equivalent stock likely to be available. Some of these occupiers may look to flip existing tenancies, in order to better meet their size requirements going forward.
This follows a view expressed by CBRE that seven evidence-based themes emanating from CBRE’s global network - including in the United Kingdom, Scotland, Canada, The United States, Sweden, The Netherlands, Australia and Spain - will assist the successful centralisation of government property functions:
1. Focus on the key levers - Mandatory property controls/standards, and a formal real estate planning regime
2. Secure the right mandate for the central function
3. Organisation structure - centralising to focus on strategy and CRM
4. Communication and marketing – core change management principles, communicate the strategy progress, and market the successes
5. Skills mix - a high performing team aligned with strategic drivers, internal client and external stakeholder requirements
6. The database – a centralised data management system is critical
7. Metrics regime to drive performance
Tim Rookes, National Director for Global Corporate Services at CBRE, says: “We utilised CBRE’s global network to identify best practice worldwide, what is working and what is not working overseas. The PMCoE are making bold changes through an all-of-government approach impacting on our property markets. Our findings show that the PMCoE is not breaking new ground, but helping New Zealand catch up and the market needs to recognise this and adapt accordingly.”
“Our research has also revealed that the most powerful levers are mandatory property controls and standards, encompassed in a formalised strategy and planning regime. Practical control over leases, supported by metrics around space usage, is the greatest driver of portfolio optimisation supporting strategic portfolio management, driving down costs, creating consistency and tangible savings for Governments and, ultimately, for their taxpayers, – all appropriate for our current New Zealand economic climate.”
“There is strong evidence to be found offshore to support the establishment of a centralised property function to take an All of Government property perspective to drive efficiency and savings initiatives. Take these off shore experiences and couple with the co-location and shared service aspirations, and the New Zealand Government could be a global leader in its centralisation programme.”
Rookes says that the research also found that outsourcing operational Portfolio Management, while retaining ownership of strategy is an enduring trend internationally.
“Strategic Portfolio Management is typically handled in-house, leveraging third party providers to deliver operational portfolio, transaction, facilities and project management services. PMCoE have an opportunity to facilitate through framework panels the ability to draw on the right third party expertise to deliver agreed operational priorities for the participating government agencies, aligned with the overarching government property strategy.
“We therefore applaud the PMCoE, as they are adopting international best practice principles, but the challenge remains in successful implementation – managing expectations and getting the communication right across both internal and external stakeholder groups, and delivering on initiatives.”
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2012 revenue).
The Company has approximately 37,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide.
CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.
