13 January, 2020

In the absence of endowments or income from investments, Knowledge Sector organisations must rely predominantly on membership fees for revenue unless they can find other sources of income. The most obvious is the exploitation of the buildings they occupy, many of which are designed around facilities that do have a wider commercial application.

Making your property work harderFor example, surplus floor space can be leased as commercial offices, although this is not without its own challenges. There are practical responsibilities to consider once organisations become landlords, as well as additional administrative burdens to carry. It is sometimes difficult to share space because of the impact this will have on prosaic areas of day to day building operation; the way in which reception areas need to be used by both parties for example, how mutual security is handled or how the presence of the tenant in the building can be advertised. For anything other than very small tenancies, where there is probably less sensitivity about the issue, occupying space in a knowledge sector building may lack appeal for tenants because they feel their presence will not have any equivalence with the host organisation or may be overwhelmed by it. Occupying a grand, pedimented building with the name of an august institution inscribed on it is bound to make you feel a little inferior if that’s not your name up there. However, that’s not to say sharing space is not achievable. This arrangement can be very popular and successful for tenants looking for a single floor rather than a whole building.

For many organisations, however, the challenge remains trying to offer a compelling proposition to a competitive market within the constraints of a limited budget for improving the quality of the facilities on offer. Intelligent refurbishment can go some way towards addressing both these problems by rebalancing how the entrance and reception sequence works and focusing on how to make the facilities on offer as attractive as possible to external users without undermining their primary purpose.

The opportunities to earn income don’t stop with taking in a tenant. Most knowledge sector organisations own spaces are capable of generating income. Typically, lecture halls, seminar and meeting rooms, dining halls and the like, all supported by corresponding back of house facilities for hospitality and catering. Organisations in heritage buildings often have the added attraction of attractive or impressive period interiors.

What can be achieved in an existing building, especially an older or protected building will ultimately be limited. Sometimes, despite its risks, a more radical approach can be the best means of opening up the opportunity to reset the whole financial basis of the organisation, placing it on a sounder and more sustainable basis for the future. Organisations will often be asset rich but cash poor, but simply staying in the same place for a long time will probably have helped. The increase in property values for long term owners has left many with significant latent value locked up in the buildings they occupy. The same is true for long leaseholders who may find their landlords more than willing to talk about the mutual financial benefits of releasing capital through a lease surrender. It’s not for everyone, especially where there is a strong emotional bond between the organisation and its traditional home, particularly when that home has been purpose built for its own use. But sentiment won’t pay the bills, so knowledge sector organisations need to see themselves increasingly as self-supporting enterprises where the successful promotion of the body of knowledge they represent is paid for by the income they can generate from their premises.

Seen through this more entrepreneurial lens, income generation becomes an important objective of any business plan. It takes on the perspective of a balance between investment and return rather than simply being the serendipity of income generated from the downtime of under-used facilities. 

As project managers, our task is to explore and where possible translate these themes into action. Our recent project for RCPath shows just that. CBRE negotiated an exit from RCPath’s lease which was an asset of declining value. With the capital receipt we helped RCPath find a new location, acquire a building and redevelop it completely to provide a new purpose built headquarters fit for the future. The multi-award winning Alie Street building designed by Bennetts Associates was a blank sheet of paper upon which RCPath could plan both its own needs but also ensure the building was shaped to provide external income from its public spaces. An additional office floor met both needs; it could be sublet and at the same time provide expansion space when the organisation needed it. State of the art meeting and conference facilities fitted with latest tech jumped RCPath into the top league as a corporate venue with a corresponding step change in revenue. On top if this – and of course the underlying objective - the whole organisation got a new home.

For RCPath a unique conjunction of market conditions created the opportunity to build its own new headquarters largely funded by the disposal of the old one. That won’t work for everyone and each situation is unique. What it does illustrate however is that truly radical transformations are sometimes possible at very low net cost.

Sentiment and tradition have their places but the possibility of achieving something like this might quickly test their limits.