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Temptation time for top tenants.

Posted On Wednesday, 16 October 2002 02:00 Published by eProp Commercial Property News
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Due diligence vital in making choices.

Michael SchirnigAs sublease space continues to pile up and vacancy figures rise in many major markets, the health of the commercial property industry could hinge to some degree on the demands of corporate SA.

Michael Schirnig, head of Corporate Real Estate Services at Old Mutual Properties, says these companies must strike a balance between profitability and space costs.

'If your turnover fluctuates 40% in a year, how do you optimise your property in that same timeframe? Tenants have become more cautious about their space usage, taking a closer look at aspects such as cost-effectiveness and flexibility.

'Deals for more than five years have become impractical in today's fast-changing marketplace. Our tenant advisory team is seeing a re-examination of what occupiers are spending for space and there is more scrutiny by upper-level management before a transaction occurs,' he says.

'If there isn't an urgent and obvious need, there's a delay in decision-making.

'Everybody wants it better and quicker, but not necessarily bigger.'

Schirnig says modern technology, a combination of the shrinking size of IT infrastructure and new-generation compact furniture has drastically reduced space requirements.

'At the moment, there are a number of high-profile property assets in all classes with space available at discounted prices, either from landlords under pressure or as sublease space from occupiers whose circumstances have changed.'

In this tenant's market, companies with good credit ratings can call the shots, he says.

'This, combined with the fact that there are so many value-formoney options available to them, may tempt tenants to make hasty decisions to snap up short-term opportunities.

'Our advice is always to do the numbers, go through the full analytical process, so that property decisions, which by their nature are longer term, don't become long-term liabilities.'

In mergers, acquisitions and restructurings, significant resources are funnelled into pretransaction due diligence and integration activities, but the portfolio of owned and leased property does not always receive the proper emphasis, even though it can represent a significant portion of the balance sheet and operating expenses, he says.

 

Last modified on Thursday, 22 May 2014 19:49

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