North East firms consider their property holdings as economy weakens - CBI/GVA Grimley survey

Submitted by on Fri, 23.05.08

Fewer firms expanded their property portfolios over the last six months, while the weaker economic outlook has pushed up the number of firms planning to reduce their property holdings, the latest CBI/GVA Grimley Corporate Real Estate Survey reveals today.

The twice-yearly survey, conducted between 12 March and 4 April 2008, reveals a balance of +15% said they had increased their property holdings in the last six months, indicating a slower rate of growth than in the previous survey (+22%) and some way below expectations (+21%).

 

Twenty per cent of firms now plan to reduce their property space - a marked increase on the 12% of firms contracting their property in the past six months. Twenty-seven per cent of firms still expect to expand their property holdings in the next six months, giving an overall balance of +7%.

 

In the extraction & utilities sector, a balance of 48% of firms said their property holdings contracted over the past half year, while a balance of 74% expect it to reduce in the coming six months. More firms in engineering and manufacturing also expect to contract their property space than expand it.

 

The survey asked firms how the credit crunch has affected their ability to do business and found, unsurprisingly, that by far the greatest impact is being felt in the financial services sector. As well as a reduced ability to borrow money and delays to projects, firms said key effects of the credit squeeze were to be seen in impacts on property disposal and acquisition.

 

A mere 1% of firms in the survey said they thought the credit squeeze offered them any opportunity to derive value from their portfolio. Some are, however, taking positive steps to manage their property: 22% of firms have restructured a lease to lower overall occupancy costs and 19% have obtained a reduced rent. Only 4% exchanged a tenant's option to break their lease for a cash fee, though 27% have considered it.

 

Sarah Green, CBI North East Director said: "The recent changes to empty property rate relief are adding a billion pounds a year to businesses' property costs. Firms tied into a lease may have little room for manoeuvre, but all companies should seize the opportunity to review their surplus property, or face these extra costs. This survey shows not many businesses have so far been able to reduce their surplus property. This is in large part due to the time lag inherent in changing property holdings. The ninety percent of retailers with surplus property will be conscious that they can little afford this drag on their business at a time of slower consumer spending."

 

North East property firm, Sanderson Weatherall commented on the current property climate in the North East.

 

In relation to the office sector Robert Patterson, director of office agency at Sanderson Weatherall said: “The sectors most affected are banking and residential development. Office occupational demand in the Newcastle remains steady with a shortage of Grade A supply in the city market, and overall the North East provides very good value for money occupancy costs. Indeed this is evidenced by the recent National Audit Office report that the Government could make vast accommodation savings by moving posts out of the South East.

  

He added “In both the office and the industrial sectors, landlords and occupiers are now having to seriously address void space with the significant increase in voids rate taxation from April 2008.”

 

In relation to the leisure sector Adrian Mattock, director of licensed and leisure at Sanderson Weatherall said: “There are still a number of deals being done within the freehold market from both the private and corporate purchaser. However, the sale of leasehold businesses as going concerns have been more difficult and the premiums paid have reduced from figures in 2007. There will be significant changes over coming months within the corporate sector, with Enterprise Inns announcing they will convert to REIT within the next 12 months and Punch considering the same option.”

 

Howard Cooke, Director at property consultants GVA Grimley said: "The rapid expansion of property seen in recent years is really starting to peter out. In the last six months, far fewer firms have sought to expand their property holdings and more are now looking to reduce it in the next six months.

"The impact of the credit squeeze, while acting as a drag on the economy as a whole, is still mostly making itself felt in the financial services sector. Nevertheless, at times like these, firms in all sectors need to be thinking of ways they can manage their property better.

"Much can be gained by restructuring a lease, reducing your rent, or paying to break a contract. Currently, firms appear unaware that the credit squeeze presents opportunities as well as threats."

 

For half of UK firms, surplus leasehold property remains a real problem, despite leases having shortened in the last 15 years. Recent changes to empty rate relief have made holding onto disused property much more expensive. Firms with the most surplus property are retailers (90%). Extraction & utilities companies find themselves nearly as burdened (83%) followed by the financial services sector (73%).

 

 How to make more efficient use of property is an issue on the boardroom agenda for 61% of firms, according to the survey. Firms in manufacturing (84%), transport (82%), engineering (80%) and retail (72%) were most likely to have this on their board agenda.

 

 Half of businesses in the survey said they benchmark their property costs against other firms, and this rises to 96% for the largest firms, 85% for retailers and 87% for extraction & utilities companies. However, only 12% of construction firms benchmark property costs, as do just 28% of manufacturers.