Governance News Alert: Association of University Directors of Estates (AUDE) Higher Education Estates Management Report 2024

The report provides a summary, insights and analysis of data from the Higher Education Statistics Agency (HESA) Estates Management Record 2022/23, which was submitted in the first half of 2024. Nearly 90 per cent of UK institutions returned data to HESA. As well as sector level analysis, it examines the data by categorising universities as large or small, research intensive or teaching institutions. The report also includes contributions from experts and estate directors from across higher education.

The full report can be found at: AUDE : Association of University Directors of Estates

At-a-glance:

• Property operating costs have continued their sharp rise, increasing by 19.5 per cent compared with the 2021/22 figures, and rising by 35 per cent in the last two years (p8)
• Energy costs have nearly doubled (+107 per cent) in the last two years to around £38/m2. Institutions now spend as much on energy as they do on repairs and maintenance – an unprecedented situation. Some universities are ‘buying forward’ or hedging, in a bid to provide greater certainty. Other costs are up everywhere: insurance premiums, for instance, have risen by 45 per cent (p8)
• Capital estates programmes have failed to rebound after the pandemic. For the second year in a row, total capital expenditure for the sector sits at £2.5bn - £1bn below the pre-Covid peak (p9, p52)
   
• However, capital expenditure on accommodation has increased significantly from £190m to £320m in this period (p9)
• There is anecdotal evidence of a growing maintenance backlog; 2.3 per cent of the overall estate is now in condition D (“poor”), up from 1.9 per cent, while 21.5 per cent of the estate is in condition C (“average”), up from 20.9 per cent (p52)
• Repairs and maintenance costs have increased by 10 per cent to £37/m2. Large Research institutions have seen a particularly stark rise in repairs and maintenance costs of £10/m2 over the last two years, taking the figure to £47/m2 (p9, p61)
• Income for the sector has grown by 7 per cent, although much of this gain is negated by inflation. The distribution of this income growth is uneven. Larger and more successful institutions are getting ever larger and ever more successful with little to see by way of equivalent income growth across the majority of universities (p9, p90)
• Income generated from residential (£2bn) and catering activities (£350m) has recovered to slightly above pre Covid level. Bed stock has increased, with over 242,000 provider-maintained beds and a further 115,000 private sector provided beds (up from 236,000 provider maintained and 113,000 third party beds) (p9, p108)
• Progress towards net zero carbon has tailed off, with scope 1 and 2 emissions barely shifting in the last four years. Benefits from the decarbonisation of the national grid have now been ‘banked’. Reducing emissions further will require institutions to reduce their use of gas and consolidate their estate. On-premises renewable energy sources represent just 1 per cent of the power used (p9)

Implications for governance:

As Professor Steven Spier, the Vice-Chancellor of Kingston University, says in the introduction to this year’s AUDE report, the financial state of higher education in England is “simply put, grim”. 

The financial challenges affecting the sector are fuelled in part by the rising costs associated with campus estates. At the top of the list is energy, with institutional spending on this necessity now as high as on maintenance and repairs.

As governing bodies will know, many institutions are being forced to make hard decisions and most are reviewing their cost base to be leaner where possible.  But implications for governance go beyond short-term cost cutting.  The governing body must think more carefully about future use of the estate both for the academic endeavour of the institution and its future education strategy, but also for commercial use and engage in scenario planning around future costs getting better value from the estate.

Infrastructure costs – both physical and virtual - have been rising rapidly for every institution. As well as repairs and maintenance costs, this includes the demands of moving to net zero, spend on software and licences, and investment in the cloud and digital projects. 

With repairs and maintenance costs increasing, some jobs are being postponed – a strategy that is understandable but not sustainable in the long-term.

David Hall, director of projects at the University of Glasgow, who is quoted in the report, emphasises: “’Put it off for another year’ works as an approach for a year or two. It doesn’t work for ten years, and always leads to greater expense down the line.”

Capital expenditure on all but accommodation has yet to recover to pre-pandemic levels.  The AUDE report points out, that some universities feel it is unjustifiable to spend on large-scale capital projects at a point of uncertainty, including over jobs. Institutions embarking on new projects are being very selective, doing one at a time instead of having several running concurrently.

With finances in dire straits, the report suggests that institutions need to put time and energy into thinking about smart campuses, be clear on the role of the campus, and use the physical estate all year round. 

Progress towards net zero carbon has tailed off. A minority of universities are in a position to develop renewable energy options, such as onsite solar and wind projects, but the majority have concluded they are not, according to the report.

Instead, institutions are employing some “old-fashioned but nevertheless useful” ‘housekeeping’ approaches to help reduce energy use – draught-proofing and insulation, for instance – or heat pumps. 

Where the money will come from to meet sustainability commitments is one of the questions raised by the report.

“In a toss-up between buildings that need a refocus on everyday maintenance and a full-on push to net zero, many of us are torn, as are governing bodies,” said Lars Wiegand Director of Property & Campus Services at Bangor University, who is quoted in the report.

Ian Grimes, director of estates at the University of Hertfordshire and AUDE chair elect, recommends that institutions consider whether there are options for district-level arrangements, whether institutions have bought into the right long-term energy supply and whether there are other ways to explore reducing gas consumption.

Meanwhile, income generation across estates grew by 7 per cent, just above inflation, with larger institutions faring better than small ones. Income generated from residential and catering activities has recovered to slightly above pre Covid levels.

All universities are looking to generate income. But in this increasingly competitive market, not every university can grow fast enough to stay ahead of rising costs and expectations. 

In light of the report’s findings, governors will want to ensure that their institution is on a proactive footing to address the issues raised, and prepared to think creatively about possible solutions, including the possibility of regional greater collaboration.  Thinking about operating models and looking at performance across all aspects of the institutional strategy in a joined-up way will be essential to make investment in such a valuable asset become realisable.