BBC response

British Broadcasting Corporation

Managing the BBC’s estate

Report by the Comptroller and Auditor General

This report has been prepared under Clause 79 of the Broadcasting Agreement, as amended, between the Secretary of State for Culture, Media & Sport and the BBC dated July 2006

Sir Amyas Morse KCB
Comptroller and Auditor General
National Audit Office

12 November 2014

This report examines whether the BBC is using its restructured estate efficiently while minimising cost and retaining flexibility to adapt to future needs.

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10546 01/15 NAO

The National Audit Office study team consisted of:
Richard Gauld and Danielle Williams, with assistance from Kathryn Barrett and Martin Chong, under the direction of Peter Gray.

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Key facts

Summary

Background

1 The BBC has a large and diverse portfolio of properties in the UK. These range from large production centres – combining office space, radio and television studios, editing suites and technical areas – to leases on rooms used for interviews. In September 2014, the BBC had 255 properties in its estate. This included 154 buildings with a net internal area of 457,500 square metres, of which around 42,600 square metres was vacant. Other properties in the BBC’s estate included unoccupied sites used for aerials and masts.

2 Property is a significant area of spend for the BBC. In 2013-14, the BBC spent £273 million on running its estate, excluding capital projects and net of rental income from commercial subsidiaries and third party tenants. This was equivalent to 7.3% of its annual licence fee income. The value of the estate on the BBC’s balance sheet at 31 March 2014 was £839 million of which £712 million related to properties leased by the BBC.

3 The BBC’s long-term aims for its estate, which it set in 1998, are to upgrade, consolidate and open it up to audiences without increasing the running cost. After the 2006 licence fee settlement, the BBC added new aims, which were to provide a fit-for-purpose and flexible estate at the minimum possible cost. In February 2014, the BBC completed a new high-level property strategy, which focused modernisation on:

supporting digital innovation;

fostering creative ambitions;

facilitating partnerships with the wider creative community; and

reducing costs.

4 The BBC’s Executive Board is responsible for developing and implementing the property strategy. The BBC is supported by Lambert Smith Hampton Ltd., which advises it on estate management, and BNP Paribas Real Estate Advisory & Property Management UK Ltd, which advises it on rate valuations. Interserve Plc provides the BBC with facilities management services.

5 The BBC Trust is responsible for reviewing the BBC’s property strategy and approving major individual property projects. The Trust’s Value for Money Committee received the BBC’s latest property strategy in February 2014.

Scope and approach

6 The BBC has completed most of its major estate projects. We have already reported on the value for money of individual BBC property projects, such as the redevelopment of Broadcasting House in central London and the relocation of several BBC departments to a new site in Salford. In this report we examine the cost and performance of the BBC’s overall estate, in particular:

progress against the BBC’s long-term goal, set in 1998, to modernise its entire estate by 2015 without imposing new burdens on the licence fee that would divert funds from programme-making;

the impact of the BBC’s estate strategy on running costs, with reference to external benchmarks; and

whether the BBC is making efficient use of its estate, informed by internal and external benchmarks and capacity planning.

7 We did not assess the value for money of individual property projects for this report, although we did visit several BBC sites to understand how the BBC was using and managing them. The financing of major property projects, which we examined in previous reports, was also outside the scope of our review. Further details about our scope, approach and how we assessed value for money are in Appendix One.

Key findings

Upgrading the estate

8 The BBC has upgraded a large proportion of its estate to meet changing operating requirements, improve its environmental performance and open more of it up to audiences. It estimates that in September 2014, 62% of its UK estate by floor area was less than 15 years old compared with just 5% in 1998. It achieved this by completing several major property developments including Broadcasting House in London and Pacific Quay in Glasgow, and by refurbishing or relocating many smaller sites. New and upgraded sites have replaced ageing facilities that the BBC considered not fit-for-purpose, and significantly improved the BBC’s environmental performance. The BBC designed its main new sites to be more accessible to visitors. For example, around 100,000 people a year have been on public tours of Broadcasting House since it opened in 2013 (paragraphs 1.6, 1.8 and 1.9).

9 The BBC has reduced the size of its estate, which has helped improve efficiency. Between 1999 and 2014, the BBC reduced the net internal area of its estate by 29%, from 640,000 square metres to 457,500 square metres. This reduction coincided with an increase in its broadcast and digital output. In September 2014, it had 154 buildings in its estate. The reduction in space has significantly exceeded the reduction in staff numbers, which indicates the BBC is using its estate more efficiently (paragraphs 1.9 to 1.11).

10 Some buildings that the BBC has earmarked for improvement, because they are outdated and inefficient, have still to be upgraded. Sites that have not yet been upgraded include Cardiff, and Belfast. These ageing sites require extensive maintenance and their design and layout is not well suited to the BBC’s current needs. The BBC plans to relocate its Cardiff operations to a new site in 2018. However, it has still to determine how it will address inefficiencies at its site in Belfast (paragraph 1.8).

Costs

11 The BBC did not meet the target it set in 2008 to cap estate costs at 6% of licence fee income by 2013. The BBC used this target to measure performance against its long-term goal to modernise its estate without increasing running costs. However, the 6% target did not appear to be based on any assessment of what the estate for an organisation of the BBC’s type and size should cost. The target and the reported costs also did not separate out the transitional cost of implementing the strategy and the BBC’s core property costs. This means that although the BBC Executive and the BBC Trust tracked the overall cost, they did not have a clear view of the ‘core’ running cost (paragraphs 2.2 to 2.4, 2.5 and 2.9).

12 The BBC did not appear to use the 6% target to manage its overall estate costs and it has since adopted a revised target. In January 2010, the BBC Executive asked the BBC Trust’s Finance Committee for approval to increase the target to 8%, to take account of the financial impact of selling freeholds and replacing them with leaseholds. The Finance Committee concluded that it was not the right time for the BBC Executive to make a decision on rebasing targets within the property strategy. The BBC Executive continued to report against the 6% target. However, its spending plans were not aligned with the target and there is no evidence that it took the target into account when considering investment cases for individual property developments. In its 2014 property strategy, the BBC did not report on performance against the 6% target. It did, however, report that it had met a long-term aim set in its 1998 property strategy to spend no more on estates than it did then, after adjusting for inflation and other changes. It also set a new objective to keep any increases in estate costs below increases in the retail price index (paragraphs 2.3, 2.4 and 2.11).

13 The cost of Broadcasting House in London, on which the BBC has a 30-year lease, has increased the cost of the BBC’s estate above external benchmarks. The BBC completed the refurbishment and extension of Broadcasting House, its headquarters in London, in late 2012 following a 10-year redevelopment. Its running cost per square metre in 2012-13, using a standardised cost classification system used for benchmarking real estate, was £1,422. Benchmarking exercises carried out by the BBC indicated that the running cost was nearly three times the UK average for comparable buildings, excluding specialist space, and 49% higher than the benchmark for the same part of central London. The site now accounts for 33% of the total annual cost of running the BBC’s estate in the UK and accommodates 23% of public service broadcasting staff. The overall cost of running the BBC’s main properties, at £649 per square metre, was 32% higher than the external benchmark in 2012-13 (paragraphs 2.6 to 2.7 and 2.12 to 2.13).

14 If Broadcasting House is excluded, the cost of running the rest of the BBC’s estate is well below external benchmarks. We analysed the impact of removing Broadcasting House from the BBC’s benchmarking data. This suggested that the average cost of the remaining buildings was £426 per square metre. This was 14% below the benchmark (paragraph 2.13).

Usage

15 The BBC has improved its use of available space. Between April 2008 and March 2013, the BBC reduced the area per person across its estate, excluding specialist and vacant areas, from 14.8 square metres to 12 square metres, a 19% reduction. This improvement was due mainly to the BBC achieving high usage rates in the BBC’s London estate, including Broadcasting House (paragraphs 3.5 to 3.7).

16 The BBC has identified that it could use its estate more efficiently and has set ambitious targets. The BBC’s own analysis suggests that several of its main sites are operating below capacity and have more space per person compared with external benchmarks. In September 2014, the BBC estimated that it had surplus capacity of 12% across its main sites. It has plans to address this at some sites by relocating staff to these sites, disposing of parts of Media Village in London and, by 2018, decreasing capacity in its Cardiff site. This would allow it to release surplus space elsewhere and bring the BBC closer to its target area per person of 8.3 square metres (paragraphs 3.6 to 3.8).

17 The BBC does not yet have good enough information on how its buildings are used to optimise usage. The BBC has undertaken usage surveys at some of its main buildings. For others, it has incomplete data on headcount and how people, particularly freelancers, use the buildings. However, because of increasingly flexible working patterns linked to technological change, and the uncertain requirements of project-based work, one-off surveys cannot provide a complete picture of how buildings are used. The BBC will need more regular and detailed usage data to identify opportunities for more efficient use. The BBC informed us that it intends to install a system that will provide it with more accurate information on the number of people using its main sites (paragraphs 3.9 to 3.10).

18 By selling or subletting most of its vacant sites and actively marketing the rest, the BBC is moving closer to its target to reduce vacant space to 5% of its estate. At September 2014, 9.3% of the BBC’s estate was vacant. At the time of our report it was discussing terms with a potential tenant for vacant space in the Media Village in west London. This contract would reduce vacant space to 2.6% of its estate (paragraphs 3.11 to 3.13).

Adapting to changing needs

19 Within the past 15 years, the BBC took out long leases, which it cannot surrender until the 2020s or 2030s, on properties that it no longer needs. The BBC spread the cost of new building projects by taking out long leases on them while selling freehold properties. For example, the BBC took out a 30-year lease on the Media Village in west London, which it moved into in 2004. However, six years later the BBC developed proposals to vacate the site and sublet surplus space. It intends to reduce the proportion of the site it occupies to 23% by the end of 2015. It believes that it will cover its liabilities for the remainder of the lease while avoiding other occupancy costs such as utilities and rates. Other sites would be more difficult to sublet without incurring losses owing to conditions in the local property market, which has limited the BBC’s options. For example the BBC plans to relocate staff from London to surplus space in Birmingham, which it took a 25 year lease on in 2001, in line with its current vision for this site. Subletting surplus space at this site was not commercially viable (paragraphs 3.14 to 3.16).

Conclusion on value for money

20 The BBC has made good progress in rationalising and upgrading its estate. It has replaced many ageing buildings with a smaller number of modern facilities that are better suited to its needs and more accessible to audiences. The BBC set an overall target cost for its estate. However, there is little evidence that the BBC was sufficiently mindful of the target when taking decisions on individual estate projects.

21 While much of the estate compares well with external cost benchmarks the overall costs are distorted by the high cost of Broadcasting House. Value for money in the short to medium term will depend crucially on the BBC making better use of space across the estate. The BBC has set ambitious targets to do this but it will need better information on usage to succeed. For the medium to longer term, the BBC needs to maintain enough flexibility in its leasehold and freehold portfolio to allow its estate to adapt quickly to the changing needs of an organisation operating in a fast-changing sector.

Recommendations

a The BBC should assess decisions about individual property projects against a clear target of what it wants its overall estate cost to be. The BBC set a target to spend no more than 6% of licence fee income on its estate. However, it did not use this target to inform individual investment cases or align it with spending plans.

b When considering the financial benefits of taking long leases on buildings, the BBC should also evaluate the potential impact on its ability to respond to changing needs. This should include assessing the impact on the overall flexibility of its property portfolio and the cost of exiting buildings early in the event of space becoming surplus to requirements. The BBC’s decision to sublet most of the Media Village, which it has leased until 2035, shows the need for flexibility in its portfolio as a whole. Some other sites, such as Birmingham and Pacific Quay, would be more difficult to sublet.

c The BBC needs better information on how its use of space is changing in response to changing business pressures. The BBC has carried out usage surveys at some of its main sites. However, as working patterns and use of technology evolve, it will need to collect and make use of more regular real-time information on usage to identify surplus capacity and opportunities for efficiencies.

Part One

The BBC’s property strategy

1.1 We have examined the BBC’s progress in implementing its long-term property strategy and set out here:

the BBC’s aims for its estate;

our assessment of the BBC’s progress against these aims; and

the different types of property in the BBC’s estate.

The BBC’s aims for its estate

1.2 In the BBC’s 1998 long-term property strategy, it aimed to:

upgrade its estate by acquiring and refurbishing properties;

consolidate its estate into fewer sites across the UK; and

make its estate more accessible to audiences.

1.3 The BBC’s Board of Governors approved the 1998 property strategy on condition that it did not result in more spending on property and less spending on making programmes. In 2004, the Governors also approved a target to increase the proportion of public service staff based outside London from 42% to 50% by 2016. This target aimed to make the national spending profile more balanced and better reflect the needs of audiences outside London.

1.4 In 2008, the BBC Trust, which succeeded the Board of Governors, approved an updated property strategy. The BBC retained the original aims of the 1998 strategy. However, it added plans to further reduce the size of the estate and move more staff out of London to address rising property costs and changes in its business strategy. In February 2014, the BBC Trust’s Value for Money Committee approved an updated high-level property strategy. The updated strategy focused modernisation on supporting digital and online innovation, fostering creative ambitions, facilitating partnerships with the wider creative community and reducing costs.

1.5 The BBC’s Executive Board has ultimate responsibility for implementing the property strategy. BBC Workplace, a department within the BBC, deals with estate and facilities management; overseeing construction projects; and managing vacant property and disposals. In May 2014 it had 39 staff. BBC Workplace is supported by professional advisors Lambert Smith Hampton Ltd., which advises it on estate management, and BNP Paribas Real Estate Advisory & Property Management UK Ltd, which advises it on rate valuations. Interserve Plc provides the BBC with facilities management services.

Progress in upgrading the estate

1.6 Over the last 15 years, the BBC has upgraded a significant proportion of its estate. It has completed major estates projects at its main sites in London and Glasgow (Figure 1 and Figure 2) and in Salford, on which we have previously reported. The BBC has also completed smaller ones (for example, in Hull, Leicester and Norwich).

1.7 The BBC originally planned to renew and consolidate its entire estate by 2015. It later scaled back its plans because of changing priorities, reduced funding and limited capacity to manage several property projects at the same time. In September 2014, 62% of its estate was less than 15 years old compared with 5% in 1998.

1.8 By upgrading a large proportion of its estate, the BBC has reduced greenhouse gas emissions, water use and waste production. Broadcasting House in London and its site in Salford were awarded Building Research Establishment Environmental Assessment Methodology ‘excellent’ ratings. This improved on the earlier Pacific Quay development in Glasgow, which was rated ‘very good’. Relocating out of Television Centre to more environmentally efficient buildings will have a significant impact on the BBC’s sustainability. Television Centre had accounted for 25% of its total energy consumption and 36% of its water consumption. The BBC estimates that by closing the building it will cut the cost of utilities by 21% and water consumption by 30%.

1.9 The BBC still has some ageing sites, including Cardiff, Bristol and Belfast, which require extensive maintenance. The relatively poor quality of the infrastructure at some of these sites has disrupted programme-making and put transmission at risk (Figure 3). The BBC has prioritised investment in these sites based on its assessment of risk to broadcast output. It has announced plans to relocate its Cardiff operations to a new site in 2018 but has yet to determine the future of the sites in Belfast and Bristol.

Progress in consolidating the estate

1.10 The BBC has significantly reduced its estate, from 374 properties in 1999-2000 to 255 in September 2014. Its estate includes 154 buildings and 101 other property interests such as sites for masts and aerials.1 Figure 4 shows the location of the 154 buildings in the BBC’s estate after consolidation.

1.11 The BBC has also reduced the net internal area of its estate. Between 1998 and 2014, it reduced it by 29% from 640,000 to 457,500 square metres. The consolidated estate includes 42,600 square metres of vacant space. This excludes Television Centre because the BBC transferred early possession of this site to a new owner in October 2014. Figure 5 outlines the main features of the Television Centre deal.

1.12 The BBC estimates that more than 50% of its staff now work outside London compared with 42% in 2004. It has therefore met one of the original requirements set for the estate one year early (paragraph 1.3). Around 46% of the BBC’s estate, measured by floor area, is in London (Figure 6).

Current usage of the BBC’s estate

1.13 The BBC’s estate in the UK supports its domestic broadcasting operations and its commercial subsidiaries and contractors. In 2013-14, it accommodated around 23,400 people on average during the year, including freelancers and staff employed in its subsidiaries. The BBC sublets 4% of its estate to its subsidiaries and a further 4% to external users.

1.14 Figure 7 shows that the two main uses for the BBC’s estate in March 2014 were workstation space (110,400 square metres) and studios (64,900 square metres). Most buildings in the BBC’s estate have both office and studio space, although some are single use.

1.15 The BBC also has property interests outside the UK. Its overseas network of news bureaux, funded by the licence fee, cost around £12 million a year to operate. However, because the BBC’s overseas estate represents a relatively small part of its spend on property, we excluded it from the scope of our review.

1 The BBC counts properties at ‘campus’ sites such as the Media Village in West London and Media City in Salford as one building in its estates data.

Part Two

The cost of modernising the estate

2.1 Here we examine:

the BBC’s performance against the target it set in 2008 to spend no more than 6% of licence fee income on its estate;

how the cost of running the BBC’s estate compares with external
benchmarks; and

other costs related to the BBC estates strategy.

The BBC’s cost baseline

2.2 In 2013-14, the BBC spent £273 million on property, net of rental income from commercial subsidiaries and third parties (Figure 8). This was equivalent to 7.3% of its annual licence fee income. At 31 March 2014, the value of the estate on the BBC’s balance sheet was £839 million of which £712 million related to leases on property.

2.3 In 1998, the BBC’s Board of Governors approved the long-term property strategy on condition that it would not increase estate costs or reduce money spent on making programmes. The BBC set a baseline of £259 million against which to monitor compliance with this condition. This was the total gross cost of running its UK estate in 2001-02 plus the opportunity cost of keeping freehold properties. KPMG reported in an internal review commissioned by the BBC in 2005, that the BBC had remained within the baseline, after adjusting it for inflation and changes in headcount.

2.4 In February 2008, the BBC Trust approved a new target that the BBC’s Executive Board had adopted to monitor and manage estate costs. The new target was to keep the cost of operating the estate, net of rental income from commercial subsidiaries and third parties, at or below 6% of licence fee income by 2013. This was the proportion of licence fee income that the BBC spent on operating its estate in 2006-07. The target was therefore consistent with the BBC’s aim not to increase spend on property above existing levels. However, the target was not based on any assessment of what the estate should cost an organisation of the BBC’s size operating in the broadcast sector at that time.

Performance against targets

2.5 The cost of running the BBC’s estate has exceeded the 6% target (Figure 9). The percentage of licence fee income spent on property peaked at 8.1% in 2012-13, largely as a result of increased transitional costs of vacant properties scheduled for disposal, but fell back to 7.3% in 2013-14, when the BBC spent £273 million on running its estate.

2.6 The long-term increase in running costs is largely due to the BBC’s decision to switch from freehold properties, on which it did not have to pay rent, to leaseholds. The BBC adopted this strategy so that it could:

spread the up-front cost of modernising its estate;

meet its commitment not to divert funds from making programmes; and

avoid borrowing that would count against the £200 million limit set by its Royal Charter.

2.7 The largest new leasehold commitment the BBC took on was Broadcasting House, its UK headquarters. This site became fully operational in early 2013 after a 10-year redevelopment of the existing site. The BBC spread the £1 billion development cost by selling a 150-year lease of the original building and taking out a 30-year sub lease on the new site. The site cost £89 million to run in 2013-14. This was 33% of the total annual cost of running the BBC’s estate in the UK. Other new leases contributed to rising costs. These included a new development at Media Village in West London, Media City in Salford and Pacific Quay in Glasgow (Figure 10). By taking long leases on these sites, the BBC fixed a large proportion of its gross estate costs for the foreseeable future, although subletting surplus space reduces the net cost. The BBC reported in its 2013-14 financial statements that at 31 March 2014, its liabilities for future lease payments, most of which related to property, were £3.1 billion.

2.8 By using long-term lease payments to spread development costs, the BBC kept capital costs low relative to the scale of its property developments (Figure 11). The BBC plans to increase capital spend until 2017-18 to help fund the renewal of its estate in Cardiff.

2.9 The target and reporting against it did not separate out the transitional costs associated with implementing the property strategy. The BBC told us that increased running costs partly reflected the transitional cost of paying for vacant buildings earmarked for disposal and newly-occupied buildings. We found that the BBC had not, however, monitored transitional costs or reported them to the Executive Board or the BBC Trust. The target itself also did not take account of transitional costs in the year it was set. Transitional costs in 2013-14 were £43 million. Deducting this from costs in 2013-14 gives a ‘core’ running cost of £230 million. This was equivalent to 6.2% of licence fee income.

2.10 The BBC Executive asked the BBC Trust’s Finance Committee in both January 2010 and November 2011 for approval to increase the target from 6% to 8%, to take account of the financial impact of selling freeholds and replacing them with leaseholds. The Finance Committee concluded that it was not the right time to make a decision on rebasing targets within the property strategy, which could be revisited at a later stage. The BBC Executive continued to report to the BBC Trust on performance against the 6% target. Our review of the BBC’s internal reporting on property costs suggests that the BBC Executive considered the target to be unachievable. We also found that the investment cases for major property projects that we examined did not refer to the target, even though it was the main consideration for reporting to the BBC Trust on property costs. The target also did not take account of the October 2010 settlement that froze the television licence fee until 2017.

2.11 In February 2014, the BBC finalised an updated property strategy. It replaced the 6% target with a new long-term target to keep any increase in estate costs below increases in the retail price index. Its long-term goal that it set in 1998 to modernise its estate without increasing spend on property remained unchanged. The BBC stopped reporting on performance against the original target (paragraph 2.3) when it introduced its new 6% target. However, in its 2013-14 property strategy, the BBC produced calculations that suggested it had met the earlier target that it had set 16 years previously.

Performance against benchmarks

2.12 Each year since 2010, the BBC has compared the largest 23 occupied buildings in its estate with other organisations’ buildings of broadly similar types and locations, excluding specialist space. The latest benchmarking data, covering 2012-13, show that the annual running cost per person, including freelancers and contractors, at the BBC’s largest sites was £6,628. This was 14% higher than the external benchmark of £5,810. The cost per square metre, at £649, was 32% higher than the external benchmark. The BBC told us that its main cost measure was the overall cost of its estate and that the cost per square metre was not a primary target.

2.13 The BBC’s costs are significantly distorted by the high running cost of Broadcasting House – £1,422 per square metre in 2012-13; this was nearly three times the external benchmark (Figure 12). If Broadcasting House is excluded from the figures, the cost for the rest of the estate was £426 per square metre, 14% below the benchmark. In response to our findings, the BBC commissioned benchmarking that showed that the cost of running Broadcasting House in 2013-14 was 49% higher than the benchmark for the same part of London.

Part Three

BBC estate usage

3.1 Here we examine:

how the capacity of the BBC’s estate compares with its current requirements;

the BBC’s progress in disposing of vacant property; and

the BBC’s flexibility to adapt its estate to meet future needs.

Capacity of the BBC estate

3.2 The BBC has exceeded a target it set in 2007 to reduce the size of its estate by 150,000 square metres to 480,000 square metres by 2015. Following the early transfer of Television Centre to its new owner in October 2014, the BBC’s estate fell by 172,000 square metres to 457,500 square metres.

3.3 The reduction in occupied space has exceeded the reduction in staff numbers, which suggests space is being used more efficiently. Between 2006-07 and 2013-14, the number of people working at BBC sites, including freelancers and staff employed by commercial subsidiaries fell by 5%, from 25,500 to 24,200 in 2013-14, compared with a 27% reduction in occupied space (Figure 13).

Efficient use of the BBC estate

3.4 To assess whether its estate is being used efficiently, the BBC has:

set usage targets based on industry good practice;

carried out annual benchmarking to compare its use of space with organisations that have broadly similar buildings, excluding specialist areas; and

commissioned detailed reviews of how some of its main sites are used.

3.5 In 2007-08, the BBC introduced a target ratio of 10 desks for every 12 people, with a ‘stretch target’ of 10 desks for every 15 people. It also set a target to reduce the area per person from 14.8 square metres to 8.3 square metres.

3.6 The BBC has made progress towards these targets. Its desk ratio of 10.8:12 is close to its target of 10:12. However, the area per person was 12 square metres per person, higher than the external benchmark of 11 square metres, and significantly above its ambitious target of 8.3 square metres (Figure 14).

3.7 The BBC has improved its usage significantly at some sites, particularly in London. In March 2014, its main London sites, excluding vacant space, had on average 8.6 square metres per person compared with 12.8 square metres at its main sites outside London.

3.8 The BBC has also carried out detailed surveys to identify opportunities to improve usage at some of its larger sites. The BBC’s analysis from September 2014 suggests that it could improve usage at its main sites by 12%2 (Figure 15). The BBC plans to increase occupancy at some sites by relocating staff from its Media Village in London and then subletting that site. If the BBC completes these plans, it would on current estimates reduce surplus capacity to 6%. The BBC plans to release rather than use surplus capacity at its sites in the Media Centre, Cardiff and Belfast. The BBC has not developed plans for all sites that have surplus capacity – for example, Pacific Quay in Glasgow.

3.9 The BBC estimates that its Salford site has capacity for 3,270 staff. Around 2,900 staff work at Salford. Information collected by the BBC on entry and exits through security barriers over a four week period in 2014 suggested that no more than 1,690 people were on site at peak times.

3.10 The BBC has incomplete information on how many people work at some buildings, particularly freelancers and casual staff. It has carried out detailed surveys of desk use at several of its main sites. However, these survey methods do not necessarily capture the dynamic nature of the business and the need for space. Changing work practices and project teams can quickly lead to changes in use and capacity. Flexible working practices mean that staff registered at particular locations can work from other sites or from home, as the BBC’s own work at Salford has illustrated. The BBC informed us that it intends to install a system that will provide it with more accurate information on the number of people using its main sites.

Managing vacant estate

3.11 BBC Workplace (a department within the BBC) manages the disposal of vacant estate. From 1998 to March 2014, the BBC disposed of around 433,000 square metres and received £310 million. It achieved this by:

vacating premises at the end of their leases, such as Bush House in London;

assigning leases (when allowed by the lease terms), such as Pebble Mill in Birmingham; and

selling freehold sites such as Woodlands and Television Centre in London.

3.12 In 2007-08, the BBC set a target to hold no more than 5% of its estate as vacant.3 The size of its vacant estate has fluctuated with the implementation of the BBC’s property strategy. Vacant space peaked at around 28% in 2013-14 because the BBC had vacated Television Centre, ‘mothballed’ White City 1 pending disposal and had not yet sublet Henry Wood House. At September 2014, the area of vacant space was 9% of the estate. If the BBC manages to sublet parts of the Media Village in London that are surplus to requirements, its vacant estate will reduce further, to 2.6%.

Adapting to changing needs

3.13 The BBC needs an estate that can adapt quickly and cost-effectively to the changing needs of its business. There is often a trade-off, however, between flexibility and cost. The BBC’s leases on its main sites, such as Broadcasting House, Pacific Quay and Salford, do not include break clauses. Break clauses provide more flexibility but can also increase the cost of renting sites that the BBC expected to occupy for the full lease term.

3.14 Changes in the BBC’s estate needs have resulted in some sites, on which it has long leases, being underused or rendered surplus to requirements. For example, when the BBC moved into the Media Village in west London in 2004, it expected to remain there for 30 years. However, six years later the BBC developed plans to vacate the site and in March 2013 ‘mothballed’ the oldest building on the site. The BBC plans to reduce the area it occupies to 23% of the whole site by the end of 2015. It expects that the terms of any sublet will allow it to cover its liabilities for the remainder of the 30-year lease while avoiding other occupancy costs such as utilities and rates.

3.15 Long leases and local market conditions have sometimes prevented the BBC from releasing surplus space. For example, the BBC concluded that subletting vacant space in its Mailbox building in Birmingham (Figure 16) and part of Pacific Quay in Glasgow was not an option because of local market conditions. In January 2012, the BBC approved spend of £4.6 million in redundancy, relocation and related costs for relocating staff from Birmingham to Bristol and in February 2014 estimated the relocation costs of moving more staff back into Birmingham at around £8.6 million. The BBC plans to structure its new Cardiff site so that it can sublet individual floors if it no longer needs them.

2 Surplus estate is the BBC’s estimate of how much extra capacity it has in some of its main buildings.

3 Vacant estate comprises vacant buildings that the BBC has earmarked for disposal and areas of buildings which are not in use.

Appendix One

Our audit approach

1 This study examined whether the BBC is using its restructured estate efficiently, while minimising the cost and retaining flexibility to adapt to future needs to achieve value for money. We reviewed whether:

the BBC estate strategy provides an estate that meets the BBC’s planned needs within the projected cost;

the BBC is making efficient use of space across its estate; and

the BBC has sufficient flexibility to adapt the size and cost of its estate to changing needs.

2 We applied an analytical framework with evaluative criteria that considered whether the BBC’s strategies and plans represented value for money for the licence fee payer. Our audit approach is summarised overleaf and our evidence base is described in Appendix Two.

Appendix Two

Our evidence base

1 We reached our conclusions on whether the BBC’s management of its estate represented value for money after analysing evidence that we collected between April and September 2014. We applied an analytical framework with evaluative criteria that considered what an optimal estate strategy would look like. Our audit approach is outlined in Appendix One.

Estate strategy

2 We reviewed the BBC’s previous and current estate strategies and supporting documentation to establish the BBC’s objectives for its estate and how it planned to achieve them.

Interviews with BBC estate managers

3 We carried out semi-structured interviews with senior staff in BBC Workplace, which is responsible for managing the BBC’s estate. We also interviewed a representative from Interserve, the BBC’s facilities management provider. We used these interviews to identify:

the main sources of data on the BBC’s estate and its performance;

the BBC’s approach to estate strategy planning and how estate planning interacts with the BBC’s business strategy;

the main estate targets, how they have changed over time and the drivers behind them;

how the BBC decides which sites should be vacated, sublet or sold;

the interaction between estate, technology and people planning; and

how the BBC intended to deal with vacant or underused sites including case examples such as the Mailbox.

Analysis of property asset data

4 We obtained extracts from ‘Archibus’, which is the BBC’s property asset database. We analysed the data to understand the size, type and location of the BBC’s estate and triangulate the data with information contained in reports to the BBC’s Executive Board and the BBC Trust on the performance of the BBC’s estate.

5 We also reviewed estate usage surveys carried out by the BBC to identify the scope for improving usage and reducing costs.

Performance data

6 We collected information from quarterly property updates and other sources prepared by the BBC to compare performance data against the BBC’s strategy and information contained in its ‘Archibus’ database.

7 We also examined external benchmarking data that the BBC had obtained from the Investment Property Databank (IPD). This benchmarking covered the cost and usage of the estate as well as sustainability metrics. The benchmark data was collected from organisations that had similar types of property with a mix of office and technical space. The organisations that provided benchmark data were:

Site visits

8 We carried out site observations, interviews and focus groups at 10 BBC sites to understand how individual sites were used and managed, and the opportunities and constraints at each site. The sites we visited were:

Broadcasting House

Television Centre

Media Village

Elstree

Cardiff Broadcasting House

Bristol

Mailbox

Belfast (Broadcasting House and Blackstaff House)

Pacific Quay

Norwich.

On our site visits we:

toured the site to identify how the BBC was using space, including any unique features or constraints;

met staff responsible for the site strategy, to understand how the sites had been used and any planned changes; and

met building users to understand their experience of working on the site and identify potential opportunities for improvement.

Other interviews

9 We interviewed staff in the Government Property Unit to obtain their perspective on recent developments and good practice in estate management.