We can’t let construction budget overruns squeeze our core activities
In early February, there were a number of reports on TV-Avisen on DR about government construction projects with budget overruns in the millions of kroner – projects that resulted in dramatic increases in rents for the universities.
In this month’s blog, I’d like to explain a bit about how problems like that arise and how they affect AU. And I’d like to explain why we aren’t necessarily that interested in owning our own buildings at AU, even though that might seem like an obvious solution to the problem.
You may not have watched the reports on TV-Avisen. In a nutshell, what happened was that a number of university construction projects managed by the Danish Building and Property Agency in recent years have been plagued by huge budget overruns. And owing to the current tenancy agreement between the universities and the agency, this will mean significant rent increases. And this has hit UCPH especially hard.
We’ve had our share of these problems at AU as well. The construction of the Skou Building was delayed by two years, and the final price tag ended up 80 million kroner higher than budgeted. The rent AU pays is set to 5.5 per cent of the final cost of construction, which means that the rent we pay for the Skou Building has also turned out higher than budgeted.
And obviously, the problem is that the money to pay for these extra expenses has to come out of the budgets for AU’s core activities – research and education.
And not only do we have to return some of the funding we get from the government through subsidies to the treasury in the form of rent – we also have to pay an interest rate that’s considerably higher than the market rate. The current rent scheme is simply too expensive. So one of my main messages when the story broke was – and still is – that we have to change it.
But in that case, wouldn’t it be better for AU to own our own buildings, you might ask? Unfortunately, the answer to that question isn’t as simple as it looks.
We would like to be ‘masters of our own house’, and particularly when it comes to construction, we would like to contribute the unique insight we as universities have, for example about laboratories and the study environment. And a comparison with DTU and CBS, who own their own buildings, shows that they have lower construction cots than the universities that rent their buildings from the buildings from the Danish Building and Property Agency.
But as tenants, we also have advantages: for example, that we can simply move out of buildings when we don’t need them any more. And this is what we’ll be doing in several cases in connection with the Campus 2.0 plan, which as you know involves vacating the buildings on the Fuglesangs Allé campus.
If we were to own our buildings, it would also require extra resources and new competencies in our facilities managements units. That would not be uncomplicated.
And finally, we at AU are in a favourable situation: The AU research foundation’s property management company (FEAS) is the owner of the municipal hospital property. They’re currently in the process of renovating it, and in coming years they’ll rent it out to us. This is a good situation for us, because FEAS offers us better conditions than the Danish Building and Property Agency. Today 20 per cent of the buildings AU uses are owned by FEAS. And in five years, that will have risen to 40 per cent.
So the number of our buildings we rent from the Danish Building and Property Agency will also fall – which means that the challenges we face because of the problematic rent scheme will also be reduced.
However, if the possibility that we can own our own buildings arises, we will take a closer look at it. As I’ve explained, the issue isn’t simple. Whether being the master of our own house is an advantage for us will depend on the particular house.
- If you are interested in finding out more about the rent scheme with the Danish Building and Property Agency – and reading a critique of it– you can read DTU university director Claus Nielsen's post on LinkedIn (in Danish).
- Read more about Aarhus University's Campus 2.0 project here