Property holdings reduced, demolitions up

06 May 2009

Companies reduced their property holdings in the last six months and expect this to accelerate over the next six months, after two years of gradually slowing demand, according to the latest CBI/GVA Grimley Corporate Real Estate survey.

The twice-yearly survey, conducted between 19 February and 11 March 2009, reveals today that while 9% of firms increased the amount of space they occupied in the last six months, 26% reduced it, giving a balance of -17%. This was slightly less than the expected balance of -24%.

The survey also shows a sharper fall expected in property held over the next six months (a balance of -25%), reflecting widespread cuts planned to both output and headcount.

Extraction, chemicals & utilities, construction and transport firms saw the steepest falls in the past six months. The sharpest declines in the next six months will be in finance, business services and manufacturing, reflecting trends in the broader economy. Retail is the only sector to report an increase in property holdings in the last six months, and the only one to expect an increase in space occupied over the next six.

Cost reduction and cash flow are the most important issues now affecting property decisions, as business expansion slips down the agenda. Firms were again asked about the impact of the credit squeeze and the slowing economy on their business. This time, access to credit is having an effect on 88% and the economy on 98%, an increase from 80% last time for both measures.

Howard Cooke, Director at property consultants GVA Grimley said: “Firms reduced their property holdings over the past six months, and this looks set to continue as they cut costs to stay afloat. “The recession has been felt by almost every business, and most are seeing at least some impact from tighter lending conditions. Surplus property is on the increase, as is vacant space, and this can only exacerbate firms’ costs now empty property rate relief has reduced.”

Over half of firms (52%) in this survey report they have surplus property, a slight increase on last time. The sectors most affected are financial services (86%), extraction, chemicals & utilities (82%).

Of those firms with a surplus of space, 97% have vacant property, up from 80% last time. Since empty rate relief was reduced a year ago, occupiers must pay full business rates on empty property after a very short period. Two-thirds of respondents say paying vacant rates is having an effect on their business, with transport & storage and retail sectors the most affected.

Among firms with vacant space, nearly half (47%) report attempting to mitigate costs by incentivising others to occupy the property, a third (34%) are speeding up their surrender of leases to landlords, over a quarter (28%) are re-occupying space, and over one in ten (12%) have gone as far as demolishing the affected property.

Karen Dee, the CBI’s Head of Infrastructure said: "The only businesses likely to benefit from the government's changes to empty property rate relief are the demolition firms. In the past year alone at least five million square feet of buildings have been demolished, creating mini wastelands across the country. This £1 billion cost on businesses has done nothing to help firms reduce costs or survive the recession. Empty rate relief should be restored without delay."

The survey was carried out between 19 February and 11 March 2009 and covered private sector firms of all sizes and from all regions, but did not include those from the agricultural sector. 198 firms responded.