"Grin and bear it" vs being pro-active

Posted On Tuesday, 28 October 2008 02:00 Published by eProp Commercial Property News
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In the last 6 or 7 weeks we've witnessed a global financial meltdown, huge drops in stock markets, massive retrenchments in the overseas financial sector and store closure announcements running to almost 1000 shops in the UK alone

Michael SchirnigWhile sheltered from the worst of this in SA, we've seen the Rand pummeled, many interest rate hikes in the last 18 months and volumes of car/house/retail sales drop significanlty. We also have a new president, just to keep us on our toes. 

What does all this mean for us as property users? What actions, if any, can we take? 

Grin and bear it ... one tactic - not advocated by Alchemy - is to tough it out, knowing full-well that the cycle turns and "it'll all be OK" again sometime in the future. For us that's akin to leaving a ton of money on the table, passively watching your margins and net profit shrinking. Not recommended at all.
 
Focused attention...adverse conditions should be used to deeply evaluate what space is needed and how it is used.
 
And the upside can be huge - companies can shave 10-20% from their occupancy costs through focused interventions along the following lines:
 
1. Understand exactly what you've got, what it is costing you: (including all the not-so-obvious factors like parking, rates & taxes and electricity) and how that space is used. This kind of overview allows you to behave more strategically in what can be very high-pressure, tactical lease negotiations.
 
First, occupy all your current space to the maximum before leasing additional premises and dispose of any surplus property as quickly as practical. Second, audit your costs thoroughly to secure savings (we've seen differences in electricity costs/sqm of 150% in the same type/age of building, owned by the same landlord). Thirdly, choose your battles - do you need all your back office staff in high-rent Sandton, or could they be based in the CBD which is 30-50% cheaper? But on the other hand, is the resultant cost saving more valuable than the synergies of co-location? 
 
2. Get rid of what you don’t need: if a dud store is costing you money, cut it from your portfolio as soon as you can, either through sub-letting or (yikes) paying a cancellation fee - as my grandad used to say "rather a nightmare ending, than a nightmare without end". Cut your losers and cut your losses.
There’s one caveat: A company's space conveys a very specific message, in particular the office entrance and public spaces where one interacts with prospects and clients or, in a retail context, your flagship stores. Branding here plays such an important role, that if your firm does need to downsize, try to economize elsewhere, rather than downsizing the brand-building aspects of the client-facing elements.

3. Business unit charging: people value what they pay for, so charge business units overtly for their space. You'd be surprised at how much more efficiently they use it...
 
4. Introduce new working practices: Historically cheap space in SA means we've been laggards in adopting new ways of work such as hot-desking and hotelling. In the UK more than 40% of firms have introduced hot-desing since 2001, and (one example of many) Sun Microsysem's property strategy is to get to a ratio of 0.8 workstations per person by 2010.

"Musical chairs" takes on new meaning on a busy day at their offices!
 
5. "Get professional help": While I hear this phrase a lot from my wife when we're in vigourous debate, it also holds true in property. A DIY book-shelf might be adequate for your garage, but you wouldn't want to muck about building your own lounge suite.

And so it is with the analysis of a property portfolio, where we've seen time and again that the assistance of an expert, tenant-only property advisor can reap huge dividends for end-user MDs and FDs. If you're trying to cut costs, get someone in your corner who knows the rules of that game and can advise you accordingly. 

It all boils down to having a portfolio view, a thought-out perspective on how best to leverage property as a business asset. 

So, use the current crunch and the inevitable scenario (re)planning that’s happening within your business to create or firm up your overall property framework - it'll help you make intentional - not reactive - decisions regarding your property matters.



Last modified on Wednesday, 21 May 2014 22:56

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