Opportunities to move and save on property costs

28 October 2009

Lower rents, shorter leases and low occupancy rates mean that now is the time to consider moving and/or renegotiating your terms

Speaking at the Workplace Trends – Back to Basic conference in London last week, Nicholas Hedley, Director IPD, examined the latest commercial property statistics and concluded that occupiers have the upper hand – for now. He commented that lease breaks are shorter and this, and other factors, is changing the landlord and tenant relationship and attitudes to holding property. “Upward only rent reviews are a thing of the past,” he said. “The typical office lease is now under five years” and “about two-thirds of buildings are vacated when the lease expires.”
He observed that about 15 percent of all office space is surplus to the occupier’s requirements. About 5 percent is actually vacant and 10 percent sublet – not needed by the occupiers business. He explained that these changed circumstances had put the real estate team at the centre of business decision making. “Utilisation of space and workstations in the name of the game and the main method of reducing property costs,” he said.
Poor practice in occupancy, and driving 80 percent reduction is carbon by 2050 is reducing the space organisations occupy by up to half of that 5-10 years ago. He explained that organisations that are strategically, culturally and behaviourally aligned to reducing carbon and have capital available, have a unique opportunity in the property market at the moment to make good deals. He concluded saying that there is now a different landlord tenant relationship and in the short term occupiers have the upper hand to consolidate, occupy less space of better quality using less carbon and with lower occupancy costs.
This view was confirmed by Lee Elliott, Director EMEA Research at |Jones Lang LaSalle. “If you are able to move there are plenty of opportunities at the moment. Landlords are able to ‘sweeten’ deals.”
He commented that there is greater understanding now of real estate costs at board level. With cost savings targets of 20-30 percent on the agenda, disposal of peripheral surplus space may not be enough so, he warned, expect an attack on core assets and reductions in sq ft occupied and the price paid for it.
Workplace Trends conference held at King’s Place, London N1 the conference and arts venue, and offices of the Guardian newspaper focused on the challenges faced by building managers, occupiers and designers in ensuring corporate survival while preparing to take maximum advantage of recovery from recession. The competing pressures of a financial imperative to occupy less space while continuing to provide a quality environment which attracts talented employees, facilitates increased output and stimulates creativity.
After the break for lunch overlooking the canal basin at the rear of King’s Place, a debate entitled “Spend to increase quality and value or cut costs to survive’ provided outstanding quality of the presentations by both speakers but little actual debate from the floor. Paul Burgess, head of London leasing at British Land and Paul Morrell, formerly a partner at Davis Langdon not only knew their subject inside out but were determined to outdo one another in slick, good humoured and succinct overviews of their positions - Burgess supporting the motion and Morrell against it. Both arguments held water. Burgess argued that by paying more you extend the life cycle and durability of the building. He cited as examples 10 Exchange Square and the former Ropemaker Place who life spans were pitifully short due to short cuts in build quality for the purpose of reducing upfront costs. His view rested on our increasing national debt and the uncompetitive nature of the UK construction industry in comparison to the rest of the World.
In the final presentation, intriguingly entitled ‘Washing away cave paintings – challenging preconceived ways of communicating in business’, Ian Hughes of Feeding Edge talked about the speed of technological change and the impact that will undoubtedly have on interaction in the workplace. Although acknowledging that face to face is the most powerful form of communication, he drew comparisons with the online ‘Second Life’ by suggesting that virtual meetings will become an environment where participants create a persona for themselves in that space to create an identity for their virtual communication. Although the majority of the audience found it fascinating, one participant commented that it helped understand the minds of the younger employees, but that they couldn't imagine a world when work was done like that.