Is your strategy focused on the business?

by Jonathan King, Director – Property Management
T: +44 (0)20 7544 2129 or E: jking@nbrealestate.co.uk

Who are the real experts in property management – owners or occupiers? It's clear that, these days, property investors are getting very adept at managing their property portfolios. After all, it’s their business and livelihood. So if you're looking for best practice when it comes to property management, follow their lead. Right?

Actually no. It's probably the last thing the property manager of a business like yours should be doing.

You see, it may be the landlord's business to manage property in the most efficient way possible, but the occupier needs to be much more focused on the business of the company they represent. Their role is to support the company with effective management strategies that link property performance with business objectives, but property managers specialise in managing property, so that’s what they focus on. They measure their performance based on their own metrics, such as asset utilisation, cost savings and, of course, customer satisfaction. But are their efforts aligned with the strategy of their own board of directors? And does it matter?

The problem is that high performance in isolation can be counter-productive. Take a look at today's business context. It's new for everyone - new challenges and opportunities. Standing still is not an option. You have to move quickly, getting out of some markets and moving into others. Speed is essential. These days, a good strategy is one that you can get out of quickly.

A good strategy is one you can get out of

Recently, when growth was the order of the day, a good property strategy involved acquiring the right space and using it to attract and retain staff. As a result, the true cost of staff could be skewed by excessive real estate costs associated with prime buildings and locations. Typically, property costs are accounted for centrally. Some companies looked at charging back the individual costs of services such as IT and facilities to specific business units, but such accounting practices were often deemed to be needlessly complicated and difficult to justify. So we are left with a situation where property is managed as a total entity, divorced from the profit and loss accounts of individual business units.

It’s all about the business

These days with drop-in business centres, desk sharing and centralised accounting, it is not an easy task to identify and unpick the property and facilities costs for a specific business unit. So a strategic decision to withdraw from a market may result in residual costs. What appears to be a sound strategic decision may be undermined by a lack of flexibility within the property management organisation. A business should be able to rely on its internal functions to support its strategic goals, but that means the functional heads need to be closely engaged with the aims and direction of the business. In short, property managers need to get intimate with the business. It has to be business first, property management second.

This is not to say that traditional property management techniques are no longer valid. But it is vital that property management teams analyse their performance from the perspective of their company’s business needs. For example, decisions about empty property need to be taken in conjunction with an understanding of strategic direction. Traditionally, empty property would be redeployed, sub-let, offered back to the landlord or mothballed. But, without a full understanding of the business strategy, it is all too easy to sub-let only to discover that the business has an urgent need for the space a few months down the road.

Close alignment with the business is the objective and a good relationship with other functional groups such as IT and HR are critical to achieving this goal. One of the key requirements of property management is to know, at any time, where individual employees are based, including their assigned property cost. The key here is to be able to cut data to align with your corporate business structure rather than property classification of tenure, location and lease terms. Traditionally, we have reported on strategies for central London or key regional locations. 

Increasingly, we will be required to report on the property commitments of individual business streams aligned to corporate structure. This is fundamental, because if you don’t have this information, how can you calculate the potential savings that can result from a change in business direction? Both HR and IT will have some insight here, so it makes sense to combine forces – and data. And it’s vital to be ready with the data when it’s needed. Being an early bird has never been more important.

Building relationships

IT, HR and property management teams have very common objectives when it comes to managing change; but how closely do they work together? The reality is that HR looks after the people, IT looks after the computers and the property managers look after the buildings. There is very little integration in working practices, which is hardly surprising given the past emphasis on specialisation and efficient working practices. But it doesn’t help the business to adapt to today's unique market conditions. Understanding the full implications of a business division's occupation and ability to separate includes knowledge of IT platforms and the associated support teams, including both soft and hard services which may be off-site.

Occupier’s market

One key effect of the recent downturn is the relative strengthening of the occupier's bargaining position. Landlords are used to having the upper hand when it comes to the lease negotiation, but the balance is starting to shift in favour of the tenant. Businesses should be using this competitive advantage to agree more tenant friendly lease terms. 

Lease clauses to consider:

• Maximise rent free periods. Traditionally these have occurred at the commencement of a lease to allow the tenant time to complete fit-out works. Why not negotiate a similar period at the end of the lease to reflect a reinstatement period? And don't forget landlords may be willing to grant a further rent free as an incentive not to exercise a break clause.
  
• Landlord’s capital contribution to fit-out works
  
• Monthly rents
  
• Upward/downward rent review clauses
  
• Widening clauses to allow minor works such as re-signage, without consent can save costly legal fees during occupation
  
• Limiting reinstatement obligations
  
• Schedule of conditions to limit dilapidations

Property management will play a significant role in the ability of companies to meet the challenges and to take advantage of the opportunities. Aligning the property position to the business strategy will provide the best platform for a strong recovery when the upturn takes effect. It's about being on the same wavelength with the business and fit enough to predict and respond at a moment's notice. Those that do will thrive.

Call me, Jonathan King, Director – Property Management, on +44 (0) 20 7544 2129 or email me at jking@nbrealestate.co.uk. I look forward to hearing from you.