Editorial

Citation

Williams, B. (1998), "Editorial", Property Management, Vol. 16 No. 3. https://doi.org/10.1108/pm.1998.11316caa.001

Editorial

Bernard Williams takes a critical look at the property profession's apparent lack of understanding of the needs of building users and the concept of facilities management.

Introduction

Ask a property manager what he or she thinks is the most important aspect of his/her job and the answer will almost certainly come back as "asset management" and "rent collection". Ask the same question of a premises manager and the answer will probably be "the efficiency of the workspace" and "cost-effective premises".

This very clear split between the landlord-driven requirements of the property manager and the user focus of the premises manager becomes more emphatic by the day as the discipline of Facilities Management ­ which embraces premises management ­ itself gains ever increasing importance.

Figure 1 (facilities economics) gives an illustration of the facilities manager's view of property and premises ­ note that "property" is subsumed by "premises"; the reason for this is discussed further below. However, let us first consider what we actually mean by the two terms.

Figure 1 An illustration of the facilities manager's view of property and premises

Property vs. premises

The Oxford English Dictionary defines property as "something owned; a possession, esp a house, land, etc. ... possessions collectively, esp. real estate". This possessive nature of the term property is significant and, of course, permits the term to be applicable to owner-occupier and investor alike.

"Premises", on the other hand, is usually defined in terms of physical characteristics e.g. "a piece of land together with its buildings, esp. considered as a place of business" (Facilities Economics, 1995).

So "property" is about possession ­ presumably for direct financial gain ­ whereas "premises" is all about occupation, also usually for financial gain ­ but this time of an indirect added-value nature.

Investment in land and buildings

The heading is deliberately generic so as to apply equally to both property and premises: a property investor makes his money from rents paid by occupiers or asset appreciation, or both, whereas an investor in premises makes his money from the value added to the business as a result of the usefulness of the facility to the operation of the business.

An owner-occupier may do both. However, unless the owner is principally in the business of property investment then maximising asset values should never be the main reason behind a premises policy. Too often we see property people influencing, or trying to influence, decisions about location, size and quality of premises with a view to either reducing the overhead cost or enhancing the asset values. Of course, premises users must have due regard to the effect of changes in asset values on company balance sheets, debt security, etc., but, all other things being equal, the critical thing about premises as assets is their fitness for purpose ­ not just in terms of physical performance but also as to how the space is planned and workplaces arranged.

Premises economics

The workplaces of the world are now generally suffering from the effects of the "premises economics" syndrome. This reveals itself in workplace solutions involving so-called "open-plan", and/or "hot-desking", hotelling, non-territorial space use and the like. Although there is occasionally some good sense in not dedicating workspace to personnel who are rarely in the office ­ e.g. auditors and salespeople ­ many of today's space planners are briefed to shoe-horn as many people as possible into the available space and often have to turn a blind eye to the woeful inadequacy of the working environment thereby created.

This is all done in the name of "premises economics" but by the above definitions it is in reality "property economics"; it is also most often based on an ill-founded premiss (sic!) that savings in the cost of providing and running space in which to do the job will add to bottom-line profits. True, it may be possible to offload space (although property is a notoriously inflexible asset) or avoid acquiring more of the commodity but the impact on the productivity of people in the more crowded, noisy, impersonal new environment may well wipe out such pseudo-savings, probably turn them into losses ­ and several times over.

Figure 2 shows a pie of the turnover/facilities/profit relationship in a typical commercial organisation. Note how the "premises" component embracing rent/depreciation, rates and operating costs comes to 5 per cent ­ about the same as the before-tax profit. The proposition that a 20 per cent saving in the cost of occupation would increase profits by a similar amount ­ i.e. a 4 per cent: 6 per cent ratio of premises to profits ­ is attractive and it is easy to see how the opportunity to make "hard" savings appeals to directors of organisations pushed for cash or under political pressure to reduce overhead costs. Nevertheless, one look at the rump of the pie that is the productive resource should alert the would-be premises axe-men to the potentially disastrous impact on the effectiveness of this rump of expenditure of an inappropriate or hostile working environment.

Figure 2 The turnover/facilities/profit relationship in a typical commerce organisation

The argument is not that you should not try to economise on premises costs ­ of course every prudent facilities manager should always have an eye to that; it is more that it should not be allowed to dictate the brief when decisions have to be made about space use: the tail must not be allowed to wag the dog.

Building performance

Another issue which is often a cause of contention between the sponsors of the premises and property causes is the matter of building performance in the context of asset values

Building performance is normally associated with building quality. It is a complex issue and difficult to define. It is currently considered primarily in terms of physical integrity and durability and the associated capital and revenue costs, but the reality is that it goes infinitely deeper than that.

Performance of buildings is defined (Facilities Economics, 1995) as "the contribution made by a building or estate to the functional and financial requirements of the occupiers and the associated physical behaviour of the fabric, services and finishes over time".

From this it follows that there are three components of performance, i.e. functional efficiency, physical efficiency and financial efficiency. So the quality of the premises can add value to productivity yet in some cases this may have little or no effect on the value of the investment in terms of the property asset; this is particularly so when the location cannot support rentals and capitalisation factors to match the true worth (and risk) of the premises to the occupiers.

Buildings are simply a means to an end. They are variously concerned with:

• •

  people;

• •

  processes;

• •

  places;

• •

  spaces;

• •

  support systems.

A building's response to accommodating these requirements represents its functional performance. Property people consider buildings from a very different angle; the performance they are concerned with is more likely to be that of value than construction ­ as if there were in fact no correlation whatsoever between the two.

It is daft, really, and it surely cannot be too long before the property market and its supporters get wise to the fact that a building's intelligence is as critical as its whereabouts.

Premises management

More and more these days premises management of the facilities variety is outsourced to specialist management companies, usually in some form of (facilities) managing agency role. These companies rarely come from a traditional landlord's managing agent base and it has to be asked whether this is due to a lack of interest on behalf of property managers or doubt as to their ability to provide the proactive service needed from facilities managers in today's hectic and highly flexible work environment.

The most successful facilities management companies have been the management buy-outs of established in-house facilities departments. They know best of all how to "suss" out and cater for the user's needs and they make it their business to put on as "professional" a hat as it is possible to wear in what is now a highly commercial activity.

Figures 1 and 2 show us that facilities management today is much more than just maintenance and cleaning and the companies in the field have to have really strong management skills as well as just technical knowledge about buildings and sound purchasing procedures.

Conclusions

So back to Figure 1 which, under the heading of facilities management, shows property as a sub-set of premises. You can just hear the hilarious laughter emanating from the West End pubs at lunch-time as the agents contemplate such a preposterous proposition. But that is how most organisations today view the issue and the tendency of central and local government to continue to emphasise the estates and asset management functions within the intelligent customer role ­ while acknowledging the arrival of facilities management as an important discipline in its own right ­ is a compromise which perpetuates an anachronism.

Property investors still need skilled people to help them to procure and manage their commodities and this thesis has no intention of knocking the value of that service.

What is under the microscope, however, is the undue influence of landlords' consultants (and their compatriots on the boards of major companies) on the attitude of organisations towards premises economics. Premises are there primarily to help people and equipment to function efficiently and you do not have to be the Brain of Britain to understand that some buildings, some space arrangements, some maintenance regimes, perform better than others in that respect. If it makes no difference what the premises are like we should all work out of garden sheds, cars and telephone booths. But then again that is already beginning to happen and the whole issue about new methods of working and their implications for property and premises is a matter for further research in its own right.

Bernard Williams

Reference

Facilities Economics (1995), Building Economics Bureau, Bromley.