Smaller, Better, Greener opportunities in the UK Government office estate

The latest release of the government’s State of the Estate report, provides us with the first insights on the governments performance against its objective for a smaller, better and greener estate, since the publication of the Government Property Strategy objectives, in August 2022 [Government Property Strategy – Capitalising on changing demand | Deloitte UK].

It shows that that the UK Government has an opportunity right now to maximise benefit from the changes to ways of working across its office estate.

State of the Estate covers the entire government estate, including operational properties and the office estate (which makes up just 2.5% of the overall estate by area). The majority of space is represented by operational properties: schools (49.2%), followed by buildings used in defence (21.2%), and health (18.3%). The report indicates that the cost and size of the estate has been relatively stable across this period, with some variations by asset class. For example, costs decreased 6% in the defence estate alongside an 8% increase in floor area (GEA), whilst the health estate saw costs increase 3% alongside a 1% decrease in floor area (GIA).

The report looks at the period from April 2021 to March 2022 which adds the dimension of Covid lockdown into the findings. In April 2021 the UK was navigating its way out of pandemic restrictions, with the stay-at-home order having ended in March and most restrictions ending in July.

Review of the office estate through the lens of smaller, better, greener

The cost of the office estate has decreased by 12% overall, but increased marginally on a cost per m2 basis (inflation adjusted). The cost decrease was driven by a 13% footprint reduction, making progress towards the smaller estate objective. Plans under the Whitehall Programme and Places for Growth indicate further footprint reductions will continue in subsequent years moving civil servants out of expensive central London properties. It is expected that the overall cost of the office estate will continue to decrease.

Over the period of the report there was a decrease in occupancy from 66% to 50%, likely due to changes in ways of working accelerated under Covid. Whilst it may be too soon for the findings in this reporting period to give the business-as-usual position, wider office market trends suggest that there will be utilisation changes, and these present further opportunities for footprint rationalisation. Key will be the sharing of granular occupancy data across government to enable informed decision-making and prioritisation of resources.

The office estate managed by the Government Property Agency, the organisation tasked with managing the consolidated office portfolio, has a low proportion of buildings with a condition classification of A or B; 42% compared to 69% across the overall government portfolio. The quality of the office estate requires further improvement but as demand for office space reduces, there is the opportunity to exit from the lower grade properties using lease breaks or termination, and through deliberate strategic asset management decisions.

To meet sustainability objectives for net-zero, the UK Government has committed to ensuring that any buildings brought into the estate will meet a target to achieve a top quartile Energy Performance Certificate (EPC) rating. While performance improvements have increased the number of buildings with a top quartile (A-C) EPC rating, this remains an area of challenge with only 47% of assessed buildings having an A-C rating. As with condition, a deliberate strategy of upgrade and targeted exit will be needed to achieve this. Government should consider linking savings achieved through footprint reduction to investment in energy efficiency.

There is progress, but still some challenges to overcome

The central government office estate is making progress on the transition to a smaller, better, and greener estate. Current plans will see the office footprint reducing further in future, decreasing the size and cost of the estate, whilst the transition to more out of London Hubs under the Places for Growth strategy will assist with improving quality and efficiency. The greatest challenge will be the transition to net-zero due to the proportion of assessed buildings having EPC ratings outside the targets. Estates-based data will be essential to enable effective asset management and strategic decision-making targeted at improving the overall quality and sustainability of the central government’s office portfolio.