Accommodation strategy: a case study in facilities planning and management

Abstract

Concerns the real estate holdings of a recently privatized utilities business. The holdings consist of two leasehold business office premises and 13 freehold line depots. The proposed strategy is to rationalize these with regard to the forecast future growth of new services in the district. The strategy comprises an office scenario and three service depot scenarios. Options are tested using a form of cost‐benefit analysis. The disposal of surplus properties is to assist in realizing the strategy. Uses a case study of the office scenario to describe the financial analysis. The options include do nothing (i.e. continue to use the existing depots in several locations ‐ the status quo); lease single premises; buy premises (i.e. an existing building) and build new premises (i.e. buy a site and construct purpose‐built accommodation). The lease option and the buy option are illustrated. Employs after‐tax discounted cash flows to model initial costs, recurring costs (rentals where relevant, energy costs and other operating costs) and annual savings (reduced payroll due to operating efficiencies). Net present costs are calculated in order to rank the options and these results cleary show that the lease option is preferable to the buy option.