Developing a Commercial Approach to Estate Management

In this case study, we’ll be examining the University of Nottingham’s (UoN) commercial approach to real estate management.

We heard from Linda Goodacre, Director of Estates and Facilities at the university, who explained that a commercial mindset is important and the new structure in place to help manage the university’s estate.

The University of Nottingham’s Estate

As with most universities, the UoN has a broad portfolio covering a wide range of facilities across a large amount of land, totalling 7 sites. It covers:

Over 400,000m² of buildings across 4 campuses
Multiple listed and heritage buildings
A lake
Farmland and a dairy centre
Arboretums
A theatre
A nightclub
A medical centre
Multiple restaurants
Two hotels[1]

Nottingham’s estate is not as old as other Russell Group universities, but it has been gifted sizeable and notable sites in its shorter history.

The university has around 36,000 students who live, study, and work across these sites. They also employ around 7000 staff.[1]

Linda likened it to running a small town, with her role covering a lot of the commercial activity across most of the campuses, in addition to managing the estate.

The UoN has a commercial portfolio due to some parts of its offerings, such as sporting facilities, being open to the public.

The farm and dairy centre also constitute commercial activity, with the milk produced being sold to Tesco.

There are also over 50 locations across campus where hot and/or cold food is served, as well as the two hotels.

Developing a Commercial Mindset

Linda highlighted that buildings are a cost before any activity goes on in them. The cost to the UoN to heat, light, power, clean and maintain their estate is around £45 million a year.

Ensuring good value and returns is a top priority for the estate’s team. Value does not simply refer to monetary value, but also the quality of the amenities and the contribution of these buildings to the student experience.

Sites such as a chapel or a temple provide great value to those who use them, despite not providing any financial returns.

It is however still important to manage the estate in such a way that those areas that are money-making can help fund future investment in new buildings, as well as maintain those already standing.

Cripps Health Centre

Linda explained how the old Cripps Health Centre had 12 GPs with a cost of £60,000 rent. This was roughly £20,000 less than the market value for that land.

Those managing the centre had not applied to the trust who was handling the move from the old property to the new one.

The new facility was going to have 25 GPs, as well as a Boots and dentist surgery.

This provided a dilemma whereby there wasn’t a new lease in place for the new facility, which was already under construction, which was going to cause a variety of bureaucratic issues.

As negotiating new leases or a lease renewal takes over two years, their solution was to carry over the existing lease as the address of both locations was exactly the same.

The way this worked was that even though the new centre was larger, they agreed they would only occupy the same square footage as the old property within the new one, meaning the lease was still valid.

Once they had moved in successfully, the negotiation process for the new lease could be agreed upon, meaning they could then go on to occupy the full available space.

Due to the greater space, the new centre had, instead of an increase of £20,000 to put the rent in line with the market value of the old property, the new amount was closer to £200,000.

However, while Linda and the estate’s team were in the process of resolving this issue, the Covid-19 pandemic hit.

This shifted the priority from securing the rent from the centre to allowing the centre to operate no matter what, as it was one of only two places rolling out the Pfizer vaccine in Nottingham.

The vaccine is being administered by the centre, with GPs operating in the entire space of the building, with an agreement that once the pandemic is over the rent will be sorted out.

This case highlighted that there were likely other sites like this within the estate that needed reviewing.

Policies on Space

Linda began looking at the organisation’s policy on space, in terms of where it is allocated and to whom, and who is paying. The split was as follows:

60%: Core teaching and research
15%: UoN ancillary services
10%: Other ancillary services
10%: Collaboration activities
5%: Other

The university does not charge for its own core services, but the remaining services and activities provided by external agents were up for negotiation.

The estate’s team put in place a policy so that any contract with external providers went through them, meaning formal arrangements concerning rent were in place.

What they found was that there was a lack of understanding of why there was a need for a contract to be in place.

Linda explained that it’s about more than just formal agreements on rent, but also about establishing responsibilities amongst the people involved.

Looking at the services that fall under ‘ancillary others’ which include:

Cripps Health Centre
Student Union Catering
Student Union Retail
Book store
Banks
Boots
Food outlets
Coffee shops

The team discovered many had no lease, or the lease had expired. Alongside this, there were no tenant management agreements in place.

The rent had not been reviewed in years for many of the service providers, as well as there being no service charges being paid.

There was no compliance being monitored, and no insurance being recharged to the providers.

This was also the case with the collaboration spaces, as well as those falling under ‘other’.

All of this meant that those providing these services were “not paying their fair share back to into the university.”[1]

The Opportunity for the Portfolio

To maximise the value of the estate, Linda and her team insisted a policy must be in place.

The policy consists of several key details, mainly that there must be a contract in place between the service provider and the university. Also, this contract must have agreed upon renewal and review dates.

This goes beyond just restaurants and shops, but also part-time research projects who set up in the university and then leave, who previously might have never paid for their time using the facilities.

The team has also set about conducting a review across the entire estate to get a full idea of how much needs to be done.

Understanding the local market is also crucial to getting the most out of the estate. Knowing how much to charge per square foot of land, and analysing the difference between office space, retail space and other types can lead to huge variations in price.

Segmenting the different types of space, and the length of commitment from each individual provider also affects the price of the rent as agreed within a formal contract.

The UoN is not just competing locally, but also internationally with its range of research facilities available to external providers. The estate’s team is also keeping on top of the market value for such spaces globally.

Finally, ensuring organisational engagement with the estate’s team is important to align each department and faculty with the potential, and processes, that are available to the university.

[1] Goodacre, Linda. 2021. Head of Estates and Facilities, University of Nottingham. Developing a Commercial Approach to Estate Management.