Senate Group’s 2022: record year for property sales, upward pressure in central government’s facility costs

Senate Group, which is responsible for the state’s real estate and property assets, reached the service goals set by Parliament, the Ministry of Finance and the Ministry of Defence. The sale of property assets no longer required by the government and building investments were record high. Russia’s invasion of Ukraine and the ensuing energy crisis meant the focus of operations was on preparedness and energy saving.

The unincorporated state enterprise group had a turnover of €860.9 million and earnings of €65.1 million. Both turnover and earnings exceeded budget targets, primarily because of successful property sales.

Senate Properties had a turnover of €558.2 million and earnings of €67.8 million. Earnings comprised €46.1 million from the proceeds of property sales and €21.7 million from rents, of which around €3 million was attributable to central government rent. This means most of the earnings was attributable to property sales and income from other than central government clients. Earnings from renting to central government clients missed the leasing system target set under the gross rent model and the ROE was 0.2% compared to a target of 0.4%.

Sales of property assets no longer required by the government were excellent and amounted to €112.1 million. Successful sales of residential plots scheduled for later in the year took sales to more than the budget target of €90 million and sales of €78 million in the previous year. In terms of selling prices, the highest transactions were the Central Pasila Railyard Quarters (€36.6 million), the plot at Haapaniemenkatu 4 (€19.8 million) and the House of Culture (€11.5 million).

Management of property costs were successfully reined in despite exceptionally high inflation. A warmer than normal year, government hedging for electricity procurement and the energy saving programme launched later in the year kept the increase in energy costs at a reasonable level given the circumstances. Hedging meant that higher interest rates were still not reflected in earnings.

Defence Properties Finland’s turnover in 2022 was €316.2 million and earnings were €4.3 million. Earnings slightly exceeded both last year’s and budgeted earnings. Earnings from central government clients were at the level required by the government leasing system and the ROE was 0.4%.

Record high building investments

Senate Group spent €489 million on property investments and construction, of which Senate Properties accounted for €395 million and Defence Properties Finland €94 million. During 2022, Senate Properties completed 38 projects exceeding €1 million. The largest of these projects were the Radiation and Nuclear Safety Authority’s (STUK) office and laboratory facilities, renovation of Kiasma and the modernisation and extension of the Sámi Museum Siida. Defence Properties Finland’s largest projects completed were depot and security projects as well as renovation of the barracks in Upinniemi. The amount of Senate Group’s ongoing construction sites increased by 70% compared to 2021, with 232 sites ongoing at year-end 2022. Most of the investments under way are aimed at the security authorities.

The level of premises maintenance continued to be kept at a high standard and Senate Group spent around €100 million on maintenance. Senate Group particularly addressed improvements in indoor conditions as well as repairs of defects identified in building inspections, for example.

Facility solutions and energy saving deliver savings

The implementation of a total of 261 space solution projects were agreed with clients in 2022. Facility modification projects delivered permanent annual savings of €10.3 million in central government client facilities costs. Besides this, sales of property assets no longer required by the government resulted in savings of €1.5 million in building maintenance costs. Total savings agreed for 2022 amounted to €11.8 million, which meant that the €7 million target set was clearly exceeded.

To minimise the impacts of the energy crisis, Senate Group launched an extensive energy saving programme in central government properties in the autumn. The programme aims to reduce energy consumption and costs and among other things to introduce demand side management solutions. The programme was rolled out nationally during the end of the year and will continue during 2023. Despite savings measures, the sharp rise in energy prices was reflected in the Senate Group in particular in higher electricity costs. In 2022, costs were around €50 million, which was more than a third higher than in 2021.

Strong focus on preparedness

Russia’s invasion of Ukraine propelled preparedness for a state of emergency to the top of Senate Group’s priority agenda and intensified measures were initiated with clients to improve the preparedness of facilities. The Senate Group had a total of some 200 different sets of measures related to the development of preparedness were underway. These included inspections of the use of civil population shelters, a determination of the priority and importance of the facilities of government agencies and institutions carried out under the direction of the Ministry of Finance as well as preparedness measures related to electricity distribution outages.

Senate Properties President and Group CEO Jari Sarjo: the level of facilities costs has remained unchanged for seven years – upward pressure going forward

“We have invested around €2.7 billion in central government premises in 2015–2022. Over the same period, almost €700 million has been spent on facilities maintenance. Despite this, central government facilities costs have not risen at all between 2015–2022. This has been achieved through hundreds of facility development projects carried out together with clients and which have delivered savings of more than €600 million in the facilities costs of agencies and institutions.

We are now facing a new, exceptional situation with energy prices rising sharply while there has also been a very significant rise in construction costs. There is in particular significant investment pressure on the facilities of security-critical clients. Preparedness measures increase property costs and a sharp rise in interest rates are pushing up financing costs. Going forward, these factors will push up central government facilities costs.

The pandemic permanently changed ways of working, as a result of which a sharp decrease was seen in office occupancy rates in particular. The most effective way to curb facilities costs, reduce energy consumption and emissions is to divest unnecessary properties. Switching over to shared work environments in accordance with the government premises strategy to an accelerated schedule enables agencies and institutions to phase out underused office premises and thus reach significant savings in facilities costs. Switching over to shared work environments promotes emissions reduction goals, provides better possibilities for preparedness in facilities and enable employees to have facilities that support working and workplace wellbeing also in a tightening economic situation.”

Municipal Government Facilities Information Services became part of Senate Properties

The Municipal Government Facilities Information Services transferred from the Counties’ Service Centre for Facilities and Real Estate Management (Maakuntien tilakeskus) to become part of Senate Properties in October 2022. The Counties’ Service Centre for Facilities and Real Estate Management transferred from the Senate Group to the ownership of the wellbeing services counties and central government on 1 January 2023.

Read the financial statements and annual reports (in Finnish):

Financial statement and annual report, Senate Properties
Financial statement and annual report, Defence Properties Finland

All reports are available on Senate Properties’ home page at https://testi-e2c55b704894.senaatti.fi/ajankohtaista/julkaisut/

Senate Group is an internal service unit of central government and an unincorporated state enterprise under the Ministry of Finance which provides facilities and related services centrally for central government administration. Senate Group comprises the unincorporated state enterprises Senate Properties and Defence Properties Finland. Senate Properties acts as central government’s work environment and facilities specialist. Defence Properties Finland started operations on 1 January 2021 as an unincorporated state enterprise subsidiary of Senate Properties and focuses on properties, functions and services serving the Finnish Defence Administration. 

Under the government leasing system, rents charged by Senate Group are based on a gross rent model and Senate makes no profit from the rents charged to central government clients. Rental income covers all the costs arising from the properties.