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A government plan to kill two birds with one stone – make money and increase the amount of office space in London by leasing out some of its own unused space to private companies – could backfire badly, according to some property experts.
The Treasury intends to cut its own operating costs by as much as thirty three percent, citing it intends to do this with “better management”, which includes subletting some sections of its own properties, including the Treasury building near St James Park, 1 Horse Garden’s Road.
Many property experts, however, are warning that they could be shooting themselves in the foot by doing so, as government buildings are not necessarily going to be suitable for use as commercial property for private enterprise. “A lot of the space the government has is probably not good space,” says Chris Hiatt, the national office agency chairman at Jones Lang LaSalle. “Certainly, it is not a quick fix and it is unlikely to impact the London market.” While he acknowledges the Horse Garden’s Road property probably will attract some market interest, he believes the majority, situated in far less desirable locations, almost certainly will not. “London is undersupplied with good space, but now with poor space,” he notes.
Matthew Stone, the director of occupier strategy at Cushman & Wakefield, on the other hand, is concerned the plan may well impact the London market – but in a very negative way. “If the government is the predominant occupier in a region, and effectively dumps space, it is going to decimate rental values,” he warns.
The plan was unveiled by Chancellor George Osbourne last week in his Spending Review, which outlined an average cut in departmental budgets of around nineteen percent, cuts which are expected to put around four hundred and ninety thousand public sector workers out of a job, creating sub-let available office space for private companies – if they want it, that is.
While many of the cuts have been slammed by politicians and social commentators alike, the amount of already empty office space owned by the government in both London and other parts of the United Kingdom was recently criticised by retail businessman Sir Philip Green, the founder of retail group Arcadia, claiming that around ten million pounds was wasted each and every year on renting executive office space that was then left completely empty and unused.
The cuts to public sector jobs which will create the new leasable executive office space are just a small example of the massive cuts that were revealed in Chancellor George Osbourne’s Spending Review as revealed last week. While the government insists the cuts were necessary and unavoidable, Shadow Chancellor Alan Johnson labeled the program of spending cuts a “reckless gamble” that targeted the poor and vulnerable and risked economic disaster, and with many property experts saying that the plan to rent out the soon to be unused government offices is doomed to failure, it is sure to further generate unease and speculation as to the chances of success or disaster for the program as a whole.
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