Hundreds of millions could be saved if State buildings were bought instead of rented, review finds

Hundreds of millions of euro in public money could be saved if the State built or bought buildings instead of renting them, an internal Government study has found.

Officials in the Office of Public Works (OPW) – charged with managing the State’s property portfolio, one of the largest and most varied in the country – have also suggested shifting civil servants out of central Dublin to make savings.

In a review of how money is spent on the portfolio, they looked at just five buildings to compare rental costs with either purchasing or constructing an equivalent building.

In every case they found it was significantly cheaper to buy or build.

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In one example, a modern office building used by public sector workers with a floor space covering 15,800m2 will cost the exchequer €374 million to rent over its estimated 40-year lifespan.

A new-build office would cost €299 million, while buying an existing building the same size would cost €288 million. This suggests that the savings from building or buying for that one block alone would be up to €86 million.

In that one case, the public spending review concluded “that over a 40-year time horizon, the cost of building or purchasing office accommodation is almost 40 per cent lower than the cost of leasing”.

Over the five buildings analysed – which have all been anonymised for reasons of commercial sensitivity – the State could save €216 million by buying or building rather than leasing.

The sample of five buildings chosen are a small fraction of the State’s 2,500-strong property portfolio, valued at €3.3 billion.

In the five sample cases, the costs of building or buying office space was between 29 per cent to 38 per cent cheaper than renting, when the value of the buildings and sites are considered at the end of their lifespan.

Some 61 per cent of the State’s property portfolio is currently owned, while 39 per cent is leased/rented, together catering for around 40,000 civil service and State agency staff.

The study, prepared for the Government, has also suggested significant savings for the public purse could be made by moving civil servants out of the costliest rental office space in central Dublin to more suburban sites.

In the context of a shift towards hybrid and working from home models, it said there “may be an opportunity to further examine the scope for moving staff from the Dublin Central Business District (CBD), where rents are significantly higher than elsewhere, to other locations”.

“This would enable staff to avoid travel into and from the city centre on a daily basis,” it found.

“For the State, there are also consequential savings in a reduced leasehold portfolio in the city centre.”

The report cites the examples of several Civil Service offices already having been “successfully accommodated” outside central Dublin.

These include the Revenue Commissioners offices at Ashtown, the Department of Education and Skills at Blanchardstown, the Passport Office at Balbriggan and the Central Statistics Office at Swords.

“The leasing of the Distillers Building, which is currently under construction, is an important example of a recently sanctioned development to create a hub type space in the Smithfield area near the Courts Service,” it added.

Currently, more than half (53 per cent) of all Civil Service staff are based in 215 buildings in Dublin, 56 per cent of which are State-owned and 44 per cent are leased.

The capital accounts for 80 per cent of the State’s total rental costs.

Nearly two thirds (63 per cent) of State rental costs in Dublin are for office space in Dublin 1 and Dublin 2.

On shifting work patterns, the report says the pandemic has shown that the “Civil Service does not need to rely solely on building based work locations/solutions into the future”.

“Working from home, on a widespread basis, has had an impact on how the Civil Service uses office buildings, and created a substantial experiment in alternative work practices,” it said.

The report notes the analysis was carried out at “a time of rising rental pressures” reflecting “an expansion of Civil Service numbers in recent years, as well as an upward trend in the level of rental costs across the commercial office sector, particularly in Dublin”.

“There is now a significant level of uncertainty over the scale and nature of the State’s office accommodation portfolio over the long-term, due predominantly to the potential impact of blended working arrangements across government departments and agencies,” it said.

“Given the Programme for Government commitment to enable 20 per cent of public service work on a remote basis, it can reasonably be anticipated that high levels of blended working will endure over the long-term.

“This poses a particular challenge for both the OPW and its clients to determine how the office accommodation portfolio should best be managed.

“It will involve taking account of changing work practices and building on current initiatives for investing in agile workspaces, for example digitally enhanced predominantly open plan working environments with collaborative spaces and significantly reduced use of cellular offices.”

The report states that leasing office space can be a “cost effective solution for short to medium term requirements” but where office space is needed over the long-term the State “may get better value for money by building or purchasing office accommodation instead of leasing”.

It adds there can be “significant challenges” to building or buying rather than renting, including the upfront resources needed and the “possible limited availability of suitable sites and buildings for acquisition.”

But it concluded that its analysis shows that when the State is acquiring “significant property for office accommodation, building or purchasing should be considered along with leasing/licensing, particularly if there is a long-term requirement subject always to the prevailing market conditions”.

Responding to the findings, Minister for Public Expenditure and Reform Michael McGrath said the spending review “is an important part of how we critically assess public expenditure on an ongoing basis”.

“At the heart of the process is a desire to ensure that value for money is being achieved for taxpayers,” he said.

“This is more critical now than it has ever been, given the many expenditure demands on the State.”