Public Sector property after the virus
A reflection by Trowers & Hamlins Real Estate Partner, Chris Plumley.
- Public sector projects often benefit from and take advantage of patient funding streams. Unlike some purely private sector developers who need cash flow financial return, the public sector has the ability and sometimes necessity for long term funding partners. This can be through private funding of local authority self financing via PWLB, LEP, CA or the increasing number of central government funding pots such as the Town's Fund or the Future High Street fund.
- Councils are increasingly looking for outputs other than financial. With the inevitable changes likely to come to the Green Book councils are evaluating schemes differently. The social impact of schemes will become an ever more important part of projects. This in turn will encourage councils to look at models for inclusive growth, increased social capital and higher quality schemes than ones which have a purely appraisal driven design.
- Council's maintenance programmes are likely to be impacted. The requirement for maintenance continues but contracting companies are showing increased level of sickness and furloughed staff. This means programmes are likely to become backed up. Where there are statutory obligations councils should start planning now to meeting those obligations.
- PWLB. The trend for councils using PWLB for commercial property investment has come under scrutiny from many viewpoints. Is it the right type of investment? Are the risk profiles understood? Is that a market distortion and the right use of public sector money? Is it just a modern way to investment in place? Once we know the details of the Chancellor's proposed curtailment in this field we will no doubt see new ways to use PWLB to keep that line of funding alive.
- There has always been a potential tension of having short term political cycles impact on long term property projects. The flagship scheme of one administration can so easily be brought down by opposition groups in marginal administrations. On the one hand the impact of BREXIT is still to be seen so it will be some time before that properly influences local decision making. On the other hand with local elections postponed and a period of stable national government we may see less political impact on deals.
- Most Combined Authorities are also now firmly established and working well. This means major infrastructure and property projects should stay on track. The funding provided by CA's for many projects is already allocated and so that viability and land supply assistance will have a positive impact.
- More consultation. This reflective period may see greater influence of local communities in development work. Already good quality developments benefit from early engagement with the impacted community. The evidence shows that where schemes are imposed they perform less well than where collective wisdom around local needs are considered up front. This also links into the idea of development's profitability having time to mature. The public sector's response to large scale flooding may also heavily feature in such consultations.
- There has been a move over recent years for increased commercialisation of councils. This initially meant a raft of new trading vehicles being set up but not every council knew how best to use them. As that ideological change has evolved some councils have developed really good business models so that the trading and partnering vehicles are producing longer term sustainable revenue. As revenue will be more important than capital we will see more of these schemes.
- Behaviour. Even before the crisis I had noticed a growing trend towards real collaboration in property transactions. I wonder if, after the current crisis, there will be a reflection on the need for people to work more closely, value contributions and be clearer about the collective need rather than those of individual entities. Better collaboration also make better business sense and tends to lead to higher quality schemes.
Originally published by the Association of Chief Estate Surveyors