As the second largest cost after staff, property plays an important role in business. Undeniably, the nature of that role will be specific to the particular business in question. But there is one common factor: to stay cost competitive, organisations need a smart approach to property occupation aligned to the business strategy – and this relies on having the right information at hand.

Strategic property management
Property managers will typically hold detailed information on an organisation’s locations, for example addresses, square footage, lease expiry dates and running costs. But traditional property data actually offers a very limited view of property performance; an effective property strategy cannot be based on this information alone. Other variables must be considered – many of which property managers may not be familiar with, or even aware of.

Vital clues to an organisation’s property performance are locked within different departments. In finance, budget data will reveal where savings are needed or capital expense is being made. The HR department will hold information regarding staff turnover at all locations – why is one particular office displaying staff retention issues? Sales & Marketing will have access to branch revenue data – does one location outshine the rest in terms of profit?

Organisations already hold this fundamental information, yet, because it extends beyond the remit of the property managers, it is often overlooked when making strategic property decisions. For a complete picture of how their property portfolio is performing, companies need to capture and structure information from various parts of the business, and make comparisons for benchmarking data such as occupier costs from the Occupiers Property Databank (OPD). Then they need to examine this data to assess the contribution their property is making to the business. Only then will they be in a position to start planning an objective property strategy.

Understanding data and market opportunities
Analysing the data in a meaningful way is a specialty service; organisations must be able to identify which bit of information is of greatest relevance to their specific industry and know how to use this to build competitive advantage.

The situation is compounded by dynamic property market factors that will all have an impact on the value that real estate brings to a business. For example, consider supply and demand: for the property market to be in equilibrium, vacancy rates should be at approximately 8 to 9 percent. At the time of writing whilst some markets are experiencing +10% vacancy rates that is not the universal picture. The vacancy rate for ‘Grade A’ stock in the Thames Valley for example is just 4 to 6 percent. A restricted supply impacts rents and the type of transaction which can be structured.

Shift attention to the centre of London, and one is met with an entirely different picture. With vacancy rates as high as 16 percent, the City is a fertile hunting ground for any tenant – which puts occupiers in a good position to renegotiate their existing leases to deliver attractive cost savings. But of course, the occupier’s negotiating position will be dependent on the type of stock in their property portfolio.

Is it reasonable to expect property managers to manage and assess all these factors – interpret business and property data, and understand market opportunities – in order to make strategic property decisions that support the business?

Another way
To successfully navigate the property cost minefield, organisations are strongly advised to seek expert assistance. CRE Consulting at NB Real Estate is a specialist division with a wealth of experience in helping companies align their property strategy to their overall business strategy.

We will formulate a matrix that overlays business and property data to identify an organisation’s best performing locations. Our consultants will then combine this information with their extensive real estate experience and property market knowledge allowing our clients to take advantage of market opportunities that create value.

Furthermore, attempting to make property decisions without access to the right information can actually damage your competitive advantage. Our experience enables a company to be smart with the available information and resources to optimise property’s contribution to the business.

Options to make property work harder
With the right information to hand, organisations can be fairly creative in the ways that they handle their property portfolio. For example, an occupier might find that their best performing location only has three years left on the lease. In the current economic situation, landlords do not want to lose tenants – particularly from an older building which may prove difficult to re-let – while the occupiers will want to secure the future of that high-performing location beyond the current lease. In such conditions, occupiers may be in a position to re-gear the lease; that is, surrender the old lease in return for a new lease more closely aligned to the business strategy.

Lease re-gearing can take many forms. For example, market conditions might allow an occupier to enjoy a ‘rent holiday’ or even persuade the landlord to contribute a capital payment to the lease. They may also be able to reduce the amount of floor space occupied, and hence the rent, to match business needs. After all, a lower income from a good tenant is always more preferable to a landlord than losing the income entirely.

But lease re-gearing is a potentially complex strategy that requires both landlords and occupiers to recognise that it can deliver substantial mutual advantages. NB Real Estate has the expertise and experience required to interrogate business and property data against current market conditions to support positive negotiations. The result: higher investment values for landlords and lower P&L burdens for occupiers.

In certain instances, occupiers will be in a position to generate additional income from their existing premises. For instance, where a company has downsized to generate cost savings, but relocating is not a viable option, that company might – depending on the lease clauses – be able to sub-let unused office or parking space.

A smart approach to property management
It is important to recognise that there is no one-stop solution to make property more productive; what works for one company may not necessarily work for another. Occupiers must understand the variables over which they do have control and those which they do not in order to identify opportunities to reduce property costs – and even create new revenue streams.

NB Real Estate’s CRE Consulting division will use their understanding of their client’s business and the current property market to plan a property strategy to meet the client’s specific needs.

And now we would like to help you to optimise the contribution your property portfolio makes to your business. If you would like to discuss your options further, please contact me, James Crisp, Director of CRE Consulting, by calling 020 7544 2229 or by emailing jcrisp@nbrealestate.co.uk. I look forward to hearing from you.