Federation Square
Federation Square in the Melbourne CBD was completed in 2002, and was managed since its inception by Federation Square Ltd, a government-owned proprietary limited Company.
Over the years, the inherent tension between public (government) operation, increasing maintenance and operating costs and the cultural charter of Federation square increased. The organisation was trying to meet public expectations about the quality and functionality of the spaces, but was hamstrung by the commercial constraints of the governance structure.
This tension came to bear when significant public backlash occurred as Fed Square announced the development of an Apple Store within the Square which some members of the public felt conflicted with the intent for which Fed Square was established.
Federation Square - Review
Client: Department of Jobs, Precincts & Regions
Client Contact : Uni Mennon/ Lung Ong
Services Primary : Operational Planning
Sector: Arts & Culture
Background
Aalto was engaged to work with the Fed Square review team in the Victorian Government to understand the financial and economic constraints of the organisation and its available revenue sources in order to determine an operating model which would be sustainable over the long term. Specifically, Aalto evaluated the suitability of different governance models and structures to determine whether operations could be suitably ‘de-risked’ under each structure.
The project involved extensive public consultation, high integration with the Federation Square Review team (including the Victorian State Architect), and production of a public report.
Our Role
In Phase 1, Aalto (with JLL as subconsultants) benchmarked rental income and modelled a range of revenue ‘levers’ that could be explored by government to enhance the commercial sustainability of the operation, whilst maintaining its public benefit Charter. Consideration was given to the commercial lease terms offered to private and public institutions occupying Fed Square, and their roles in driving foot traffic, economic activity and supporting its overall operating position. A range of scenarios were modelled through which lease, outgoings, car parking and other revenue scenarios were shifted over time in keeping with legal requirements and current lease terms to establish long term financial sustainability, levels of cross subsidy and alignment with its cultural charter.
In Phase 2, Aalto undertook a detailed governance review for the entity, to determine the most appropriate future governance structure, company form and operating approach. Comprehensive financial modelling was then completed to determine the operating position of the organisation under a range of different scenarios. The analysis undertaken by Aalto incorporated financial ratio analysis, break-even analysis, subsidy determination and impacts of corporate structure on financial outcomes, governance structures and accountability for outcomes.
Outcomes and Insights
The public Federation Square review report was released in mid-2020. It proposed that its governance be reconstituted as a Government Business Enterprise, with an enhanced focus on delivery of the renewed cultural charter, a revised programming strategy, and increased alignment with the major cultural tenants within the Square.
The visitor and financial forecasts were terribly impacted by COVID-19 shutdowns, and the resultant outcome was a merge of the Fed Square and the Melbourne Arts Precinct (under MAP Co) utilising a model consistent with that which was recommended for Fed Square.