Plan no matter what the shape

Posted On Tuesday, 23 February 2010 02:00 Published by eProp Commercial Property News
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Every one of us has a view on whether we're still in the Downturn or whether the Upturn has already started and whether it will be "U"-shaped or "W"-shaped. But at the risk of sounding like an American motivational speaker, "ignore the Upturn and Downturn - make it your turn."

Michael SchirnigIn the property context that means ignoring macro economic things beyond your control and doing everything practical to squeeze value out of the real estate that serves your business.  
According to Alchemy, here are some pointers to developing a decent strategic plan:                                                        

How big should your office be?

"Bigger" would be my tongue-in-cheek response, but size isn't everything, apparently, as a recent report from the British Council of Offices indicates:
• 77% of the properties sampled had a density of 7-12 sq m per workstation, 5% between 5 and 7 sqm (eina!) and 18% had 14-38 sq m.
• The skewed distribution around the 11.8 sqm mean indicates that occupiers are generally driving space hard, with the exception of the legal profession which sits at 20.9 sqm, probably indicating the continued reluctance by some in the profession to relinquish their personal offices.
• The missing element though is how much the individual workstations are used and, therefore, the efficiency of the overall floor space.  
Typical Question: We're renewing our lease at the moment - should I get the broker that did the original deal to come back and advise us?
Answer: That depends on the outcome you're after.
There are many excellent property brokers in the market, but almost all of them are paid by landlords to secure the best possible terms & conditions for  the owner of the building, not necessarily for you as the occupier.
You have to ask yourself "Would a broker secure you all the economic benefits you're targeting in this once-every-five-years transaction, above the needs of a landlord for whom they do several deals a year?"
If the answer is "No", you need to find an independant 3rd party, who specialises in tenant representation (rather than landlord representation) and who can assist you with researching options and then negotiating with the landlord.
A strategic property plan

  • A strategic property plan is a set of strategies to achieve real estate solutions that complement a company's overall business goals. And an effective plan does more than just predict space requirements; it also ensures a return on investment and facilitates growth and/or contraction among other things.
  • A good plan anticipates space needs and provides solutions that meet the company's financial and operational objectives, and at the same time reflects its management style and unique corporate culture. Most importantly, in today's tough market, a sound strategic plan is never static; it is driven by the business plan.

Strategies for today's market:

To remain competitive in the current tight economy, you must maximize your asset utilization. In other words, make the most of what you have. Make intentional decisions about your property investments (whether owned or leased) and how you use your existing assets. During a soft market, such as we are experiencing in most parts of South Africa, it is a good time for companies to look ahead at both short-term and long-term objectives.  

Too much space?
Let's say you currently operate out of three different premises, but after closer evaluation you find you could operate just as well with only two - if you are operationally indifferent as to which properties to keep, then sell or sublease the space that will generate the highest return. Give the market what it wants - as long as it doesn't negatively affect your own business objectives.
There’s one caveat: A company's space conveys a very specific message, in particular the entrance and public spaces where one interacts with prospects and clients. 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 entrance and other client-facing elements.

Need more space?
If your company needs additional or more functional space, there are numerous alternatives to the lease or purchase of additional space.
1.there's a significant amount of high quality (and now keenly priced) sub-let space available
2.efficiency improvements, whether through space planning in an office or workflow re-engineering in a factory or the purchase of productivity enhancing equipment can free up significant amounts of space, delaying the need to take extra space.
While the phrase ‘tenant’s market’ is unlikely to be uttered by a landlord, there are currently a number of ways to secure fair rentals and decent tenant installation allowances. Negotiating an appropriate deal for more space now could very well save you money in the long run.

Proactive decision-making
It all boils down to having a portfolio view, a thought-out perspective on how best to leverage property as a business asset. The temptation may be to pounce on localized opportunities that present themselves in the current market, but that could unravel in years to come. I believe the best route is to develop and implement a long term property plan that crystallizes the companies approach to ‘lease Vs buy’, longer Vs shorter commitments and how property can best be used as a positive lever in the pursuit of profit.
With that framework in place, decisions become very straightforward to make and a lot less time-consuming. 

So, use the current tough times to create or firm up your overall framework - it'll help you make intentional - not reactive - decisions regarding your property matters.

Last modified on Wednesday, 21 May 2014 22:01

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