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Choices for Change

22 October 2008

Business relocation is always a difficult choice, but with a difficult economic climate and environmental pressures to consider, organisations need to consider the options carefully before deciding to ‘stay’ or ‘go’

CHANGE CREATES OPPORTUNITIES. So, while the credit crunch, inflationary pressures, wild markets and economic jitters have had a largely negative the impact on the commercial property market, they have also focussed attention on the worth of commercial property and, in particular, the best way of getting value out of it. According to Paul Barden of facilities management to fit-out company Modus Group, the current state of flux in the market may turn out to be a blessing in disguise in the longer term.

“I think there are a number of forces coming together in the market right now,’ he says. “The major issue is the ongoing uncertainty and that brings its own issues, but we are also witnessing a greater focus on the environment as new standards are introduced, notably those relating to energy performance certificates.
What these two major forces are creating is a far greater emphasis on optimising the value of assets and in particular property.

“Of course this has been developing as an issue for some years now, driven by the research of organisations like the BIFM, RICS and CABE and so on, but there’s nothing like the current sort of pressure to focus minds on the bottom line. The fact that the business case is already so compelling, and there are so many talented and knowledgeable people around able to deliver on that business case, all coincides
with this period of uncertainty, and has accelerated the development of this new mindset. For many people the current situation is painful, but it is also likely to change the structure of the market in a way that makes
people think about developments in a new way.”

Ann Clarke of Claremont Group Interiors agrees. “There is always a balance to be struck between risk and return. Firms will always need space but developments frequently come with a high degree of risk because of their high levels of investment, long project timescales and all against the potential backdrop of a fluctuating market. In an uncertain market the risk-return equation naturally shifts and so there is currently a much greater focus on return. That can be a positive for those firms who understand how to get the best returns on their property assets.”

One of the most obvious manifestations of this shift is to be seen when firms come to make decisions about whether to develop new buildings or refurbish an existing site. “There is a natural inclination for some organisations to see a move to purpose-built new offices as being a better option than improving their
current workplace or refurbishing other existing space,” says Ann Clarke. “Often this is because they assume that they can’t deal with change in an old building to introduce new technology, meet environmental standards, implement new flexible working, accommodate growth, or whatever. In most cases, however, both the ‘stay’ option or the ‘go’ option can be backed up by a strong business case. The first thing we need to do is to challenge the notion that modern buildings must be better able than older buildings to meet the needs of a modern organisation. Often they are, but in many cases, older buildings can prove to be a better option.”

To back up her point, Clarke cites several key advantages that refurbishments may offer over new developments.

● Natural light: Buildings that predate the widespread use of electric lighting and air-conditioning may have better natural lighting and ventilation. In the case of technological and infrastructure change the older building structure may be more able to accept the large horizontal and vertical channels needed to accommodate telecommunications servicing.

● Floorplates: Modern buildings often have large floorplates, embedded services and low floor to ceiling heights which can limit their use. Older buildings are less likely to have the same limitations so may actually be better suited to the needs of contemporary organisations.

● Space planning: It is often possible to accommodate more people in a space with the application of an intelligent space planning review that either changes the organisation’s space planning standards, frees up poorly used space or, more frequently, both. The past ten years have seen many changes in working
methodologies which offer a wide choice of business cultures and space planning models that can be used to make it very likely that an organisation can find a complementary model for the way they work in a particular building, whatever its age. Space standards have typically shrunk over the last five years by around 20 per cent or more and the ongoing development of flexible working also means that buildings are
now measured by their ability to provide a base for flexible workers as much as their ability to be a home to core functions.

● Time: In the time it takes to secure land, carry out a site inspection and develop architectural plans an entire building renovation can be carried out. When time is a factor, refurbishment can be the best option. In addition, refurbishment can be viewed as a way of extending the economic life of a building from between five and twenty or more years depending on the building and the organisation’s objectives and longer term
ambitions to move into purpose built accommodation. This will affect the cost of the refurbishment of course, but may also be constrained by building regulations and environmental standards.

● Brand and culture: A renovation offers a better option for those organisations which would prefer their culture to evolve rather than transform. There are numerous examples of companies who have tried to impose a new culture on their organisation under the guise of a new build only to encounter cultural problems that can drag out for years. A growing body of research demonstrates the role a building can
have in forming part of the company brand. If your organisation is strongly associated with a particular building, a move will have implications for the company’s image.

● Retention: Location factors such as proximity to customers, suppliers, transport infrastructure, parking, ease of access to the site and so on. While new offices may also help to attract and retain staff, a refurbishment in an existing location may help you to retain staff who might otherwise feel uncomfortable with a move or who may be unable to travel.

● Business ethics: There may well be environmental considerations as well as a need for the organisation to stay in a particular location to maintain an association with an area and provide employment for wider ethical or CSR reasons.

● Incentives: As well as planning issues, there may also be fiscal incentives from government for the firm to be in a particular site. Recent legislation on issues such as the environment, disabled access and the management of asbestos may also have a bearing on decisions.

And then of course, there’s cost. ‘We do have an idea of indicative costs, but ultimately any refurbishment costs will depend on a wide range of factors,’ says Paul Barden.

These include the scope of the work, the design and condition of the existing building and risk factors. The major point to bear in mind is that the costs of a refurbishment will tend to vary far more broadly than new builds. A refurbishment in Central London may vary in cost between £300 per sq m up to £2,100 per sq m.

Barden continues: “These provide a useful rule of thumb, but I’ve never seen two projects that were exactly alike so the important point is to develop clear objectives, weigh up the various risk and return factors, cost the projects accordingly and work with the right partners. Decision making about any project should cut across the entire organisation, customers and all stakeholders. Close cooperation between everybody, especially the various disciplines involved in the project, is essential.”

As well as cost, one of the most immediate appeals of refurbishment right now is sustainability. “In some ways the case for this is obvious,’ says Paul. ‘Reusing a building while making improvements to its performance is likely to have far less of an impact on the environment than a new build. The introduction of energy performance certificates this year has made everybody far more aware of energy consumption which has led to far more investment in buildings and building performance to meet the standards. There are
ethical reasons for this of course, but it’s also plain good business practice. And that, ultimately is what this is all about.”

While being clear about the advantages of refurbishments, Ann Clarke is careful to emphasise that it is not invariably the best solution. “It pays to weigh up the options carefully,” she says. “Flexibility can be very
important in meeting the needs of the organisation in the long term. Buildings typically consist of six layers, each of which functions on a different timescale. These range from the site itself which has a life cycle measured in centuries, through to the building - decades, interior fit out - years, technology - months, to staff - days or hours. An effective project will be the one that best resolves the tensions that exist between these elements. There isn’t one best solution, but at least we’re well-equipped to find the best solution for each case.”

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