While many governments around Europe have actively considered disposal of public-owned real estate assets to assist their deficit-reduction plans, the latest evidence indicates that significant challenges remain in executing these programs, according to a new report by CB Richard Ellis.
In 2010, government property sales around Europe totaled approximately 1.1 billion, which is well above the absolute scale of sales in 2009 but down to only around 7.5% of all occupier disposals. In comparison, government disposals accounted for 15% of occupier sales in 2006 and 2007.
Richard Holberton, Director, EMEA Research & Consulting, CBRE, said: "Not surprisingly, there is considerable variation around Europe in the strength of government commitment to this type of activity, and in their degree of success in executing planned programs Moreover, the ability of governments to dispose of real estate assets successfully depends partly on the motive for disposal and the type of asset.
Investor demand is likely to be stronger for assets that are still needed for operational purposes than for surplus buildings in poorer locations. In parallel, many governments are looking more actively at the scope for space rationalization and other means of using operational space more efficiently, even without any change in ownership."
The current situation is very country-specific. There are some countries where stronger public finances mean that sales programs are either unnecessary or inadvisable. In Denmark for example, the relatively small deficit means that there is less desire to consider measures beyond raising taxes and cutting public spending. In Germany, despite a strong contribution to European government asset sales over the last four years, there are no specific asset sales programs proposed by the government or public authorities.
"Sale of publicly-owned real estate remains on the political agenda in many parts of Europe and further sales are expected. However, the most recent evidence indicates that actual activity levels remain muted. There is wide variation in the quality of public sector assets and hence their appeal to prospective investors. There may also be political tensions between the need to be seen to be considering all options for deficit-reduction, and concerns that some previous programs have only been partially successful," continued Holberton.
In the UK, for example, where public asset disposals have been very limited in scale over the past two years, recent indications appear to have softened the intention to dispose of £35 billion of assets over the next 10 years, in favor of seeking greater operational efficiencies from occupied buildings.
Political obstacles also remain a block across a number of countries. In Belgium, a substantial sales program during 2001-2006 was met with public and political opposition and has not been revived. In Poland, there are often many ownership claims towards the buildings occupied by government which is one of the reasons why disposals have not been widely pursued. In Spain, there is some momentum behind plans to create regional level vehicles to house public real estate assets but this may take time due to legal hurdles.
Ireland has provided no specific statements of intent from the Office of Public Works, partly because of higher priorities on the political agenda, but it is likely that moves in this direction will accelerate in 2011, particularly in light of the recent general election. There is more prospective activity in Northern Ireland, where the public sector is rationalizing, with potentially substantial impacts on the market.
In France, the government is estimated to have sold over 1.7 billion of real estate in the three years 2007-09, although the scale of disposals fell sharply last year. The latest valuation (which is not universally accepted) puts the total value of French government real estate holdings at over 60 billion, which provides a strong basis for the ambitious sales program over the next couple of years.
Christopher Peter
