The mindset to adopt when disposing of surplus space

Posted On Wednesday, 04 March 2009 02:00 Published by eProp Commercial Property News
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Warren Buffet once said: “You only find out who has been swimming naked once the tide goes out”, implying that tough times expose those people/companies that have been a bit too risqué during the good times

Michael SchirnigAnd the current economic slowdown is doing a lot of exposing – in the commercial property context this means that the costs related to marginal store locations (which shouldn’t really have been opened in the first place), lax operational procedures within shops and overly-generous space standards for office workers ("on-site gym" anyone?) are beginning to bite.

And there doesn’t appear to be a quick fix or sudden end to the meltdown being experienced “overseas”, so the knock-on pressure on us in SA ain’t going away any time soon.

What to do?

Simplistically this means jettisoning marginal locations and surplus space with all haste. As the headline says “Just do it!”

Work out what space you don’t need and dispose of it as soon as practical, even if there has to be some associated pain – my Dad has a saying “rather have a nightmare ending, than a nightmare without end” – and it’s a useful, if not exactly scientific, piece of hokey wisdom when it comes to sub-letting.

Things are going to get significantly worse in SA before they get better in 18-24 months time, so firm and focused action right now will limit long term pain.

Getting the Board's attention in 2009

The challenge for corporate property people in 2009 is going to be delivering anything that will get the attention of the Board, given how focused everyone is on just keeping the business going.

Conservation of cash always moves up the agenda in difficult times and the adage "cash is king" will no doubt return to centre stage. For property this will mean arguing service charge costs (in particular rates), adapting electricity usage to cater for Eskom’s mooted penalties, plus a host of other basic property management actions which in themselves can deliver large savings.

The next priority is to look at lease expiries to reduce portfolio costs either through closure upon expiry, or via aggressive renegotiation of renewal terms.
 
The top tier of attention-grabbing activities will be large scale restructuring of the portfolio and disposing of surplus space – ideally without a major cash drain on the business.

Collectively these will get the attention of the board, as they offer a straightforward opportunity to add value, along the lines of “a penny saved is a penny earned”.



Last modified on Wednesday, 21 May 2014 22:27

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