Property Management

1.1    DWI has a very substantial property portfolio. Anything less than competent management poses a serious financial risk for the department and for the Crown. As at 17 March 2000 DWI occupied 211 properties (including vacant space) involving annual expenditure for rent and associated costs (including car parks @ $0.9m) of $37.2m. Attached as Attachment A is a schedule providing space and occupancy, lease term and financial commitments.

1.2    From the information available to the Review Team it appears that the property portfolio has been well managed. DWI acquired at the date of integration the sites previously occupied by Income Support (DSW) and the NZ Employment Service (Department of Labour). The Integration Plan provided for a 4 year process for acquisition and disposal to the planned number of sites. The majority of the plan requirements have been achieved within 18 months and within budget. 27 sites have been expanded to meet the integrated staff and operational requirements, 35 new sites have been acquired and 69 sites have been vacated and disposed of. As of now 7 sites remain vacant and still subject to lease obligations. These sites currently incur an annual cost of $2m. Attachment A provides information about properties that are sub-leased to external tenants and vacant space on which rent is still being paid. The vacant space amounts to 6.5% of the area in the DWI property portfolio. The Business Case savings to the Crown amount to $5.4m and is expected to be maintained at that figure. Attachment B is a document setting out the property strategy containing the critical information from the 1998 business case and the revised (year 2000) business case. The earlier achievement of the target has resulted in rental savings being increased from $2.3m to $5.4m.

1.3    Comparative data indicates that DWI is well placed as a property manager. The 6.5% vacant space compares favourably with the national market level of 13.6% as at 30 June 1998, although above the 30 June 1998 level for Government Departments of 3.7%. A report in The Dominion of 20 April 2000 states that in Wellington vacant central city office space amounts to 12.2%. We also note that the average cost per sq mtr for DWI occupied leases is $155. According to The Dominion article, premium grade office rents in Wellington range from about $300 to $340 per sq mtr. The total occupancy cost for DWI as at 21 March 2000 is $5595 compared with $5933 for Government Departments and $4616 for the market level, both as at 30 June 1998. The fit out cost per sq. mtr for DWI as at 21 March 2000 is $317 compared with the market level of $470 as at 30 June 1998.

1.4    In the section of this report on IT we have identified a difficulty with consultation and cooperation between agencies. It appears as though the major problem related to property acquisition and expansion was associated with new or additional IT requirements. On the one hand there was the desire of DWI to move as quickly as possible to acquire new sites and provide additional space to enable the "one-stop-shop" policy to be put in place and provide benefit to the Crown by reducing rental costs. On the other was the need for those responsible for IT, and particularly the Consolidated Network, to arrange contracts, install systems, maintain an on-going computer operation and ensure the integrity of the system and its data. Although there appears to have been difficulties between those involved it is to their mutual credit that both objectives were met without disruption to the provision of services and the delivery of government policy.

1.5    We have noted that there is no reference in the Controller & Auditor-General's report to the Minister of Social Services and Employment of 8 February 2000 to DWI's property portfolio and its management. We have discussed this with the office of the Controller & Auditor-General and propose that that office be invited to include a property audit in the next audit of DWI and report to the Minister in the report for the year 2000.

Attachment A

Property Management

Attachment B

Property Management Strategy

Property Strategy	Original Business Case	Revised Business Case
Rationalisation Period
Period over which staff will be physically located in a single site	4 years	18 months
Pace of Branding
Level of branding at the time of rationalisation	Full Branding	Branded at different levels (ie minimum, partial, full)
Period over which full branding of sites will be achieved	4 years	7 years
Lease Buyout/subleasing
Total number of lease buyouts/subleasing	50 sites	28 sites
Total costs
Capital costs	$23.7 million (over 4 years)	$23.4 million (over 7 years)
Signage	$2.5 million (over 4 years)	$2.7 million (over 2 years)
Lease Buyout	$6.6 million (over 4 years)	$3.0 million (over 3 years)
Total Costs	$32.8 million (over 4 years)	$29.1 million (over 7 years)
Total Operating Benefits
Rental Savings	$2.3 million per annum	$5.4 million per annum