Take Stock of the situation

The commercial property sector is to come under further pressure during 2012 in the light of the current economic climate and the uncertain times ahead for the Euro Zone.  Both rental and capital values started to show sign of weakening during the Q4 last year and are expected to continue to decline during 2012 as the continuing uncertainty over the future of the British recovery continues.  Tough market conditions in the retail sector have led to have affected high streets across the country.  Even the usually resilient London market is starting to show significant stress with rental levels and capital values starting to decline as the number of potential transactions slows.

However, all is not lost!  With the decline in value for the landlord comes the increase in opportunity for the tenant.  Now is the ideal time to undertake a comprehensive review of all your lease and occupancy arrangements.

·                     Are you able to exercise any lease breaks?

·                     Are any leases up for rent review?

·                     Are you holding over?

·                     Have your business needs changed?

·                     Is your occupancy at the optimum?

·                     Could you place any non essential requirements in better value accommodation?

·                     Is there an opportunity to outsource activities?

Every cloud has a silver lining, see what lies behind this one for your business.

Innovation@jaltd.co.uk

L is for...

Leasehold:

The occupation of commercial business premises by means of a lease from a private landlord or an institutional lease from a pension fund or similar is a well tried and tested method of getting the real estate you need to undertake your core business activities.

In recent years there has been a movement in the manner in which there leases have come to be drafted with, arguably, more flexibility being driven into the process by market demands.  The days of institutional leases of 25 years, with no breaks and upwards only rent reviews as the norm are probably no more, with the legacy if these practices of the 1980’s and early 1990’s hanging around for a few more years to come.

For most large organisations, the acquisition of new commercial property by this means is a well trodden path which holds no concerns or fears.  For those less experienced, here are my top 5 tips when considering this undertaking:

• Term:  The term of any lease and the potential for breaks (which must be able to be exercised by either party, not just the landlord) in that lease, must align with your organisational business plan over the medium to long term.

• Demise:  Make sure you are clear on what is included and what is excluded in the demise you are considering.  Favourites for unintended inclusion and exclusion are toilets and lifts (elevators for those in the US).  Both of these carry the potential for considerable maintenance and upgrade costs, make sure you know what else you are getting in your square footage!

• Total Costs:  As well as your rent, don’t forget that there will be other costs associated with taking over leasehold space.  Business rates are a given, and can be a significant expenditure item and also make sure you understand what service charge your landlord is proposing to levy and what you get for it.  There may be others too, some landlord are providing other services on an opt in basis, make sure you tick the opt out box if you are not going to use them.

• Legal:  Commercial leases are significant, weighty and binding documents.  Ensure that you have sought, and importantly listened to, professional advice about the lease you are about to enter into.  It is essential that the lawyer that acts for you is a specialist in the field and knows their way around the clauses that will be buried somewhere in the lease, ready to pop up at an inopportune time to cause you problems.

• Alterations, changes and dilapidations:  You have you new lease in place, you may even be enjoying a rent free period to fit it out to your requirements.  Make sure you know whether you need your landlords permission for those works, any subsequent changes, what process that permission will require to achieve and what your liabilities are in respect of dilapidations at the end of the lease.

James Alexander Consultants can help you find your way through to the best solution to your accommodation needs.

eMail us on innovation@jaltd.co.uk or see our contact page for our numbers.  We look forward to speaking with you.

I is for...

Innovation:

Changing times call for ever more thoughtful approaches to your asset management challenges.  The current marketplace within commercial property is even more volatile than usual, and, whilst geography plays its part, the general view of the marketplace is that conditions are hard and likely to be so for the forthcoming time.

Spending time in careful consideration of the challenge this places on your business with regard to your built assets and liabilities is therefore well worth it.  In a previous post we have talked about the place within your business the build estate holds and the opportunity for the review and assessment of the estate in the light of this.

Detailed knowledge of your real estate liabilities will enable you to clearly plan ahead and, in conjunction with you business requirements, determine whether there are any opportunities to do things differently.

There may be scope to reorganise finances through the asset and balance sheet, to renegotiate terms with your landlord or reorganise loans on freehold occupancy.  Assessment of the utilised estate and how it could be improved, could allow for sub-letting (should the terms of the lease allow).  Group companies can potentially co-locate to reduce costs and vacating premises can save costs, even if the lease is still in force, with running and occupancy costs reduced to near nil and the potential for rates relief.

James Alexander Consultants are expert in assessing your portfolio and, with you, determining a strategy to develop the correct balance of assets, their relevance and performance for you.  We develop, plan and implement the strategy, leaving you to focus on core activity and opportunity.

eMail us on innovation@jaltd.co.uk or see our contact page for our numbers.  We look forward to speaking with you.

G is for...

Growth:

A few brief thoughts today on how your real estate supports your organisation in times of growth.

The key word in the previous sentence is the word support.  It was once commented that a £100,000 building will house £1,000,000 worth of equipment that will produce £100,000,000 worth of product.  The message being, that without the £100,000 shed the production is not going to happen.  In themselves the built assets do not form part of the core activities of you r business, but without them, or with the wrong assets, the business is not going to function in the correct way.

So, where is your £100,000 shed?  Is it the right size & shape, is it adaptable and flexible for your needs and, most importantly is it going to keep up with the business development that you have planned?

Regular review and assessment of the facilities you occupy will help you determine whether this is the case:

• Can developing new working practices and work patterns help with your business growth?
• Can your site accommodate new temporary buildings to address immediate requirements for additional accommodation?
• Do lease restrictions mean that your current facility will not, over time, be suitable for your purposes and is now the right time to plan to move?
• Will new compliance regulations in your business or industry mean that refurbishment is required?  Will this prove to be prohibitively expensive in the current location?

 You will be aware that property related transactions do not move too quickly and, sometimes, not too smoothly either.  Planning well ahead for your businesses operational real estate requirements will be key in achieving success.

James Alexander Consultants are expert in assessing your portfolio and, with you, determining a strategy to develop the correct balance of assets, their relevance and performance for you.  We develop, plan and implement the strategy, leaving you to focus on core activity and opportunity.

eMail us on innovation@jaltd.co.uk or see our contact page for our numbers.  We look forward to speaking with you.

D is for...

Dilapidations:

There comes a point in every lease when the subject of dilapidations raises its head.  This need not be as daunting a prospect for the tenant or lessee as it may seem, however it is one that should be approached carefully.  In general terms most institutional leases will require the lessee to return the asset to the landlord at the end of the term in the same condition as they originally took it over.

However……!

Negotiation is the key.  In general terms the landlord is looking to make sure that their asset has not been adversely affected by the tenant’s occupation.  Now, being good lease abiding tenants, all clauses in the lease relating to refurbishment and alterations will have been abided by.  These usually form a requirement for redecoration on a periodic basis in longer leases and for any alterations, upgrades or refurbishments requiring approval from the landlord before proceeding.  Therefore, the landlord will know what general condition the asset will be in and, with regard to tenant upgrades and refurbishment, these will have been undertaken up to the latest regulations, so will, potentially be seen by the landlord as improvements.

If you are intending to exercise a break in the lease, your lease will determine the notice period to give, if the lease is terminating then the date will be well known. These are the ideal timeframes to commence discussion with the landlord with regard to dilapidations.  Each landlord will be different as will each situation.  Remain open to suggestion and do your best to limit your liability.

James Alexander Consultants are expert in assessing your portfolio and, with you, determining a strategy to develop the correct balance of assets, their relevance and performance for you.  We develop, plan and implement the strategy, leaving you to focus on core activity and opportunity.

eMail us on innovation@jaltd.co.uk or see our contact page for our numbers.  We look forward to speaking with you.

A is for...

Asset.

After your staffing costs, your built assets, your business’ occupied accommodation, is most likely to represent your biggest cost centre.  Achieving the most efficient and effective usage of your accommodation portfolio is a constant challenge for business and one that, if not managed well, can cause major difficulties and, of course, unnecessary expense.

The opposite of asset is liability.  Many businesses will focus on their real estate in terms of their ability to run their operations; however, not focussing on the whole aspect of their asset responsibilities can lead to difficulties.

Here are my top 5 tips:

1)      Utilisation: Nothing worse than having too much accommodation, unless it’s having too little!  Undertake some assessment and analysis of your occupancy and how well it relates to your core business requirements.

2)      Lease: Have you ever reviewed your lease?  The last time many occupiers will have viewed their lease is when their lawyer was showing them where to sign.  It may be dry, but get a glass, mug or cup of your favourite beverage and have a look through.  You do know where your lease is, don’t you…..?

3)      Liabilities: Following on from Lease, do you know what your liabilities under the lease are?  A lot of companies get caught out with this one.  Insuring and repairing liabilities are onerous and taken very seriousy by the asset owner, your landlord.

4)      Location: Does your business require to be in its current very expensive accommodation?  Could a review of the business objectives, processes and customers reveal that a carefully planned and considered move to less expensive, more flexible accommodation could save your business money?

5)      Contracts: There are, undoubtedly, a large number of contracts keeping your buildings and your business running.  When was the last time these were reviewed, not just for cost but more specifically for suitability and relevance.  You may surprise yourself!

James Alexander Consultants are expert in assessing your portfolio and, with you, determining a strategy to develop the correct balance of assets, their relevance and performance for you.  We develop, plan and implement the strategy, leaving you to focus on core activity and opportunity.

eMail us on innovation@jaltd.co.uk or see our contact page for our numbers.  We look forward to speaking with you.

Rise in numbers of residential rental properties

The number of residential properties in the private rented sector has risen again this year.  Approximately 17%, or nearly 1-in-6 of all British houses now belong to the private rental sector, reflecting an increase of 229,000 properties on last year.

Despite mortgage difficulties the opportunity to secure bricks and mortar investments remains as quintessentially British as drinking tea.  The rise continues, fuelled by a combination of landlords buying property with cash and buy-to-let mortgages, people letting out homes they have inherited and homeowners deciding to let their property and, in some cases move into private rented accommodation themselves.