Appendix A - Options for Perth City Centre Accommodation and Improving Services to Customers
Perth and Kinross Council · 4 September 2024
Back to Perth and Kinross Council — 4 September 2024 and its agenda
Text extracted from the council's PDF. Layout and reading order may differ from the original.
Page 1
Appendix A Working Smarter – Options for Perth City Centre Accommodation and Improving Services to Customers 1. EXECUTIVE SUMMARY 1.1 The opportunity for Perth and Kinross Council to acquire Pullar House is a strategically advantageous proposition that aligns with the Council’s corporate vision and priorities, offers an enhanced customer service experience and supports multi-disciplinary collaboration and innovation. 1.2 The Pullar House Public Finance Initiative (PFI) project agreement expires in September 2025. If the Council wishes to exercise its right to purchase Pullar House at market value, this needs to be intimated to the owners by 10 September 2024. Relevant previous decision of Council 1.3 On 4 October 2023 Council agreed to the principle of the development of a Public Service Hub and instructed officers to develop a business case, to include the potential purchase of Pullar House for consideration and a final decision on whether to progress with a purchase. 1.4 This appendix provides an overview of that work and detailed information to support recommendations 1a-1e in the covering report. 2. CRITICAL SUCCESS FACTORS 2.1 A considerable amount of work has gone into engaging with partners, testing the commercial market and analysing our own office, archive/storage and other accommodation requirements to assess options in relation to the future of Pullar House. 2.2 Each option was considered against seven critical success factors: 1) Supports the Council’s office accommodation needs as determined through the Hybrid Working Policy. 2) Delivers an excellent, integrated customer service experience for residents in an accessible location. 3) Delivers on wider policy considerations for the future of public sector estates including One Public Estate, Scottish Futures Trust’s New Frontiers for Smarting Working, the Christie Commission’s emphasis on the importance of public sector collaboration, and the Infrastructure Investment Plan for Scotland 2021/22-2025/26. 4) Ability to deliver on the Council’s Net Zero ambitions. 5) Has a positive economic impact on Perth city centre.
Page 2
6) Represents value for public money. 7) Delivers the required £1.9m savings and wider public sector savings. 3. WORK TO DATE AND KEY ISSUES Understanding our office accommodation needs (critical success factor 1) 3.1 In April 2024 the Council introduced a standardised approach to hybrid working (report 24/42 refers). This means that full-time employees in suitable roles are expected to spend a minimum of two days a week on-site. This has helped give clarity over expectations which has allowed us to better establish the desk space/usage of existing office accommodation. 3.2 In addition to space for staff officers also considered the need for document storage facilities for archives which are currently housed in Pullar House, with overflows in other buildings in the wider estate. The previously identified need for secure and safe storage space for the museum and galleries collections was also considered. 3.3 Space planning consultants were appointed to independently assess the Council’s office accommodation requirements. A Current Council city centre spatial supply (of which Pullar House = 8,129m2) 14,136m2 B Office space demand. Includes: Workspace (651 desks with a desk sharing ratio of 3.7 desks for every 10 people) Ancillary (lockers, print rooms etc) Support (customer spaces, IT, civic spaces, current archives, storage, meeting rooms etc) -10,021m2 C Additional document archive space demand -509m2 D Collections storage space demand -1,150m2 B+C+D Total Council city centre spatial requirement 11,680m2 Excess space from current supply 2,456m2 Deficit without Pullar House (8,129m2) -5,673m2 3.4 If Pullar House is retained excess space can be used to accommodate teams currently in St Martin’s House, ending that lease. 3.5 The independent space planning exercise concludes that without Pullar House there is a shortfall of space. This would particularly impact space for customer service, office accommodation and archives and collection storage.
Page 3
Public Sector Hub (critical success factors 2 and 3) 3.6 There are already a number of internal and external partners who are successfully co-located within Pullar House and could continue to contribute to a Public Sector Hub for the benefit of multi-disciplinary cross-working and improved customer service: Health and Social Care Partnership Perth and Kinross Countryside Trust Social Security Scotland Visit Scotland 3.7 NHS Tayside Vaccination Services relocated to Pullar House in July on a short- term lease. If the Council decides to purchase the building NHS Tayside have indicated their expectation to extend this commitment on a cost sharing basis, subject to government direction of travel and continued centralisation approach. 3.8 Scottish Government have stated the public service hub proposal aligns with the Scottish Government Single Scottish Estate (SSE) programme and have provided in principle support to co-locating within Pullar House on a cost sharing basis when appropriate agreements are reached. 3.9 A range of other public sector partners have provided a high-level commitment to the principle of co-location but have been unable to give a firm commitment before there is a decision of Council to purchase the building. 3.10 Officers are continuing to explore co-location options with third sector partners for the Fair City Equalities Hub. This period of transition is seen as a valuable chance to innovate and optimise our community services. 3.11 Marketing activity was also undertaken to test potential interest from tenants in the private/commercial sector. This yielded minimal interest. The lack of demand for office space the size of Pullar House and the configuration of the building challenges its practical value for new or growing businesses. Environmental Value – Net Zero Study (critical success factor 4) 3.12 Pullar House currently performs well against benchmarking, with below average energy consumption levels. If Council agrees to purchase the building future works will be required to decarbonise the building and reach net zero targets. 3.13 In March 2023 a Scottish Government-funded study outlined seven potential zones for cost-effective heat networks in Perth city centre. Pullar House is a key ‘anchor load’ – a major, steady heat demand source – for the proposed network under the Local Heat and Energy Efficiency Strategy (LHEES). Efforts continue
Page 4
with the Heat Network Support Unit to progress the Perth City Centre Heat Network to provide future net zero efficiencies. Impact on Perth city centre (critical success factor 5) 3.14 Based on the spatial requirements established by the space planning consultants, the Council’s Estates Team undertook a review of suitable alternative office accommodation within the city centre to meet the shortfall if the decision of Council is not to purchase Pullar House. That review concluded that there is no available city centre office accommodation that meets the required size, condition, accessibility and net zero criteria. 3.15 A potential co-location opportunity with a private sector organisation on the outskirts of Perth has been identified as a viable location. However, this would mean withdrawing part of the Council’s workforce from the city centre with a knock-on impact to footfall and usage of city centre businesses as well as links between teams and partners brought together by the close location of the Council’s city office network. This option would also create revenue pressures in payment to the private sector owner of the out-of-town building. 4. OPTIONS APPRAISAL 4.1 As instructed by Council an Outline Business Case (OBC) has been developed to appraise the options in relation to the future of Pullar House. 4.2 Five options were developed: Do nothing: current properties retained, with no action taken on the Pullar House lease resulting in ‘tacit relocation’, whereby the existing lease terms effectively continue. This option assumes no disposals and no additional property is acquired. Do minimum: exit Pullar House, retaining all current properties in Council ownership and acquiring no additional property Renew lease on Pullar House: release St Martin’s House released; no additional property required. Route A – purchase Pullar House: release St Martin’s House released; no additional property required. Route B – exit Pullar House: lease alternative office accommodation to mitigate shortfall in spatial requirement. No provision made for other public sector partners, and it is assumed existing archives and collections will be accommodated through separate off-site accommodation. 4.3 Based on the initial analysis contained in the October 2023 city centre accommodation report (Report 23/268) and failure to deliver on the critical success factors, all options apart from Route A and Route B have been excluded from further consideration.
Page 5
Route A – purchase Pullar House 4.4 This option considers the purchase of Pullar House and utilising the additional space within the building to: create a Public Sector Hub – leasing to other public bodies on a cost- sharing basis and providing improved customer access to multiple services; enable enhanced multi-disciplinary locality working within the city centre; support existing cross-service collaboration given the close co-location between existing city centre office estate; support the Hybrid Working Policy via the provision of modern office accommodation; relocate St Martin’s House service delivery into the ground floor of Pullar House – providing enhanced service delivery via provision of bespoke space which meets future legislative requirements; extend the Council’s at capacity archives on top floor of Pullar House allowing current overflow stored at A K Bell to be moved so that Local Archives can begin accepting donations again; provide city centre storage space for Culture Perth & Kinross collection, resolving existing capacity and risks with current improper storage. 4.5 With the purchase of Pullar House we can release St Martin’s House from the portfolio. 4.6 Costs associated with Route A: Operating budget Based on 25/26 £4.7m Future operating budget requirement £2m Total saving £2.7m Capital Investment Required Purchase price and remodeling £10m Total capital investment £10m Revenue Investment Required Annual loan charges of capital borrowing £450,000 Pullar House lifecycle costs £426,000 TUPE (workforce) costs £119,000 Perth Office Programme (POP) loan charges £400,000 Total revenue investment £1.395m Potential Income Income from sub-lets £652,000 Route A presents a potential £1.97m net revenue saving. Route B – Exit Pullar House
Page 6
4.7 This option considers the release Pullar House and the related requirement to lease alternative office accommodation to manage the confirmed spatial shortfall. 4.8 Shortfall in space would be managed by: leasing in office space (3,142m²) outwith the city centre, due to lack of suitable accommodation within the city centre (subject to market rental and upwards only rental reviews) repurposing the existing Civic Hall into a customer service centre moving all customer-facing staff to 2-26 High Street and all non-customer- facing staff to rented office accommodation Externalising records to a paid, external, offsite storage facility construction or rental of an alternate collections accommodation or leaving collection store at risk 4.9 No provision has been made for accommodating other public sector partners – removing the opportunity to provide a city centre public service hub, with costed proposal relating only to the Council’s accommodation requirements. 4.10 There are two sub-options within Route B: B1: Exit Pullar House with collection storage solution - full comparison with Route A B2: Exit Pullar House with no collection storage solution 4.11 Costs associated with Route B1 Operating budget Based on 25/26 £4.7m Future operating budget requirement £1.3m Total saving £3.4m Capital Investment Required Refitting 2-26 High Street Creation of Collections Store Fit-out cost for rented accommodation £12.67m Total capital investment £12.67m Revenue Investment Required Annual loan charges of capital borrowing £570,000 Provision for records storage and retrieval £134,000 Costs associated with purchasing/ leasing new premises £835,000 POP loan charges £400,000 Total revenue investment £1.939m Potential Income Income from sub-lets £0
Page 7
Route B1 presents potential net revenue saving of £0.99m in year one (due to non-recurring one-off removal costs), rising to £1.49m from year two. 4.12 Costs associated with Route B2 Operating budget Based on 25/26 £4.7m Future operating budget requirement £1.3m Total saving £3.4m Capital Investment Required Refitting 2-26 High Street Fit-out cost for rented accommodation £7.67m Total capital investment £7.67m Revenue Investment Required Annual loan charges of capital borrowing £345,000 Provision for records storage and retrieval £134,000 Costs associated with purchasing/ leasing new premises £835,000 POP loan charges £400,000 Total revenue investment £1.939m Potential Income Income from sub-lets £0 Route B2 presents potential net revenue saving of £1.2m in year one (due to non-recurring one-off removal costs), rising to £1.7m from year two. Financial Modelling 4.13 Indicative financial modelling was developed to provide an operating budget comparison of each option, giving due consideration to how the operating costs, additional costs, POP loan charges and income from potential sub-lets would impact the existing operating budget for the property portfolio:
Page 8
ROUTE A - Purchase Pullar House ROUTE B1 - Exit Pullar House with collections solution ROUTE B2 - Exit Pullar House with collections left at risk 2.4 2.2 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Potential Savings Original Savings Target Updated Savings Target Savings Projections Route A exceeds both savings goals, with Route B, both with and without a collection store solution, falling short due to the high costs of renting and refitting required additional office space, external archives and collection store. 5. OPTIONS ASSESSMENT 5.1 The site options were assessed by the Senior Officer Group against the Critical Success Factors noted in section 2.2. Critical Success Factor Option 1 2 3 4 5 6 7 Route A – Purchase Pullar House Route B – Exit Pullar House 5.2 The preferred option (Route A) is the purchase of Pullar House and transformation into a public sector hub, delivering on all critical success factors and supporting the economy, smarter ways of working, office estate rationalisation and resolving long-standing document and collection storage issues within the city centre whilst potentially exceeding the instructed level of savings.
Page 9
5.3 The key benefits of Route A are: Value for money: the significantly diminished market value of office accommodation means that purchasing Pullar House and doing further remodeling at 2-26 High Street, represents the better value for money option to meet our assessed office space requirements. Financial prudence: purchasing Pullar House at market value is a financially sound decision, enabling the Council to achieve significant cost efficiencies and long-term savings, exceeding the Council’s £1.9m savings target. Cost savings: creation of a Public Service Hub where costs are shared will generate potential savings in excess of £1m annually for the public purse. Community impact: co-locating with key public partners in a single hub has the potential to transform public service delivery, providing a better customer experience for the community. Enhanced service delivery: co-location fosters closer collaboration, improved communication and operational links between public partners, enhancing our combined ability to address complex community needs effectively. Economic revitalisation: retaining large office premises in the city centre will increase footfall, supporting local businesses and stimulating economic activity. Environmental sustainability: co-location will enable the Council and partners to rationalise our respective property portfolios and dispose of outdated assets, reducing our collective carbon footprint and potentially freeing up sites for affordable and/or social housing. 6. CONCLUSION 6.1 The proposal to purchase Pullar House is commercially viable and strategically sound. It aligns to the Council’s key corporate priorities and local and national policies, enhances public service delivery, supports economic growth, promotes sustainability and ensures fiscal responsibility. Embracing this opportunity will deliver transformative change and provide significant public value.