Auditor General says property agencies are `underachieving'

State agencies involved in the provision of industrial property have yet to introduce adequate systems to monitor the performance of their investments, according to the Comptroller and Auditor General.

In a new report on the subject, presented to the Dail yesterday, Mr John Purcell said not one of the three agencies with industrial property portfolios had set target rates of return on their investments. The agencies covered in the report are IDA Ireland, Shannon Development and Udaras na Gaeltachta.

"While the agencies are generally considered to be effective in meeting the demands of industry for suitable industrial property, the performance measures examined in this report would suggest that they are under-achieving in economy and efficiency terms," Mr Purcell said.

At the end of 1996, the three agencies were responsible for portfolios of industrial property valued at £274 million. These comprised 2,200 hectares of land and 1.2 million square metres of factory space.

The report concluded that the financial rate of return achieved by the agencies was between three and four per cent, less than half the current public sector discount rate.

This reflects the agencies' practice of subsidising rents as well as "a lack of economy and efficiency through holding too much land for too long, holding property for which there is no market and a willingness to bear high current property costs".

The report found that rents charged, particularly for property in the IDA and Udaras portfolios, were in many cases significantly below market levels.

"In part, this may arise because some property is occupied on the basis of temporary lettings at low rents, on the principle that some rent is preferable to no rent."

One large vacant IDA unit, for example, has been let at a rental of 43p per square metre, compared to a guideline price of £32.20. In 1996, average rental income per square metre for the agency was 87 per cent of the guideline price.

The report also showed that property holding costs incurred by the agencies for services such as maintenance, security and insurance were higher than the costs normally incurred by private sector developers. "This was partly attributable to factors such as the reluctance of the agencies to pass on all costs to their tenants, the high standard of specification required for industrial promotion purposes and the age of buildings," it said.

The report found a major contrast in the age profiles of the three agencies' property portfolios.

At the end of 1996, 23 per cent of Shannon Development's portfolio space dated from before 1970, 54 per cent from 1970-1984 and 23 per cent from 1985 or later. Conversely, just 4 per cent of the IDA's space dated from before 1970, 88 per cent from 19701984, and 8 per cent from 1985 or later.

The smaller proportion of new properties held by the IDA reflects a change of emphasis in recent years in favour of disposing of existing property where appropriate.

In 1997, a total of 70 properties, totalling 97,000 square metres of factory space, were sold by the agency. The report said the agency "achieved relatively low sales prices because of the age and condition of the buildings sold and in some cases because of lease conditions which fixed rents at low levels".

The report said the IDA no longer directly provided new factory space but instead relied on industrial investors to provide their own premises with the assistance of grants.