10 The new Home Office building will occupy around two-thirds of the site with the remainder being a separate development of mixed residential (including 25 per cent affordable housing) and commercial premises to comply with Westminster City Council planning requirements for the area. Although there are contractual safeguards protecting the Home Office, some residual risk relating to the commercial/residential development remains. The planning agreement stipulates that the final 25 per cent of the Home Office building floorspace cannot be occupied until completion of the commercial/residential site. However, AGP is sufficiently incentivised to complete all the required construction on time. During occupation, a payment mechanism incentivises the contractor to achieve availability and service levels.
11 The Home Office decided to dispose of its existing estate itself as the prices offered by the bidders for its freehold properties were not considered to offer good value for money. The prices offered by the bidders will, among other considerations, have reflected their assessment of the risk of changes in the property market. The extent to which this risk has already materialised is not clear but given recent decreases in the commercial property market in central London, it is possible that the value of the freeholds is now less than estimated by the Home Office at financial close in 2002. The gap in valuation was such that the Home Office still expects to get better value when the surplus buildings are disposed of.
12 The Office of Government Commerce considers cross-Government property strategy issues and will assist the Home Office with planning a property strategy to recycle or dispose of its surplus assets appropriately. The future of the remaining properties has not yet been decided but the Home Office and the Office of Government Commerce consider that retaining the freeholds in the Westminster area could offer better value for money for government as a whole rather than transferring the property to the private sector.