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The Commitments

5th January 2017

Commercial landlords know to keep their buildings looking smart and working well. But when financial pressures intrude, other sectors should follow this lead and plan to invest over the whole life of a building...

Financial pressure exists across all sectors, be it to reduce costs or drive up value – or more likely, both. And when different priorities are competing for attention the evidence shows that life-cycle investment can fall quickly down the list.

Cancelling or postponing continued investment in existing buildings can too often become very tempting to cash-strapped providers who need to schedule work against a tight budget. But while life-cycle investment can seem like the most obvious and easiest programme of work to put off when there are more exciting, high-profile investments to be made, the costs and liabilities of existing buildings don’t go away. In fact, more often than not, they increase. Ignoring life-cycle repairs and improvements runs the risk of creating a time bomb where suddenly unavoidable high-cost investment desperately needs to be addressed but hasn’t been built into a budget.

In the commercial sector, good long-term landlords and agents know that smart reinvestment in buildings can protect their appeal to tenants and enhance value. People in the market for new property, whether it’s residential or commercial, are increasingly savvy about spotting where improvements might be imminently required. And good landlords know not to take for granted that small life-cycle flaws might not be noticed.

Why is the same approach not adopted by all parts of the property sectors? Life-cycle or cyclical repairs and improvements may not be very “sexy”, but if they are well planned and properly targeted they are essential and represent good value for money. They aren’t difficult, but can be complex given the sheer number of costs to consider, along with the added time factor and effects of inflation. Most importantly, they are essential. How can a local authority (LA) know whether it can afford to run a building if it hasn’t costed its life-cycle investment needs? How can facilities managers know what budget they are working to and where to prioritise their investment without a fully evaluated life-cycle programme?

The decline in the public estate during the 1970s and 1980s can in many ways be attributed to a failure to address this issue. This is what happened to council housing, which is why the Decent Homes standard was introduced in 2000. It wasn’t just intended to set a minimum standard, but also to trigger and target action among providers to improve their stock and invest where it was needed. A huge investment programme followed from authorities all over the country – underpinned at considerable cost by central government and the taxpayer.

However, it is not just about adopting the same approach – tailored solutions are required to address individual landlord needs and aspirations. For example, modelling tools which match investment requirements against future income can assess the viability of the initial investment and the long term retention of the asset. Viability assessments link life-cycle costing to strategic asset management planning; including change of use, redevelopment and disposal to realise valuable capital receipts. Aligned to this, programme optimisation reviews of housing providers’ asset investment can be used to create intelligent profiling and programming, whereby providers can reduce delivery costs, combine works to maximise their investment and unlock asset value.

Link this to additional services, such as treasury and funding consultancy, and a comprehensive strategic asset management plan can be developed and implemented. IT tools are also important. The technology exists which allows surveyors to use iPads to assimilate life-cycle data on site. The devices connect via 3G cards and update every 15 seconds to create live and dynamic reports to inform strategic decisions on the building or portfolio of buildings as required, while updating a central database. The system has already successfully been used to assist a large London university. Costs were assessed over a 20-year period, enabling the estates team to form a highly targeted maintenance and refurbishment strategy across the campus.

Another key factor in life-cycle investment is the need to integrate sustainability directly into the investment plan. If a housing provider has properly identified opportunities for domestic energy retrofitting at reduced cost, they can splice external grants into their investment programmes at the right time, in the right stock, when and where the need is greatest. And it is not just the provider that benefits from a properly costed, targeted programme of life-cycle investment. It is vital also to look at the whole life costs from the perspective of the occupier. While providers recognise that better standards of energy efficiency, and better specification of materials, will save costs in the long term, for residential tenants it will save significant money on their bills.

Whether it’s with smart meters, new insulation or double glazing, a home that is obviously well maintained and up to decent standards will be far more appealing to tenants who can see where improvements might need to be made. So while it’s tempting for providers to take their eyes off life-cycle investment in favour of more glamorous development, in the long term they are risking their stock, their tenants and their finances. The tools are already there to help providers manage complex life-cycle investment programmes. No sectors can afford to ignore them, or the consequences of a failure to invest.

Richard McCarthy is executive director, central government, at Capita

This article first appeared in Building magazine

 

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