‘Profound impact’ from accounting change warning

OCCUPIERS and investors need to be ready for new accounting standard that will force firms to put lease obligations on their balance sheet, says a new report.

Research by BNP Paribas Real Estate UK warns that proposals from the International Accounting Standards Board will have a “profound effect” on the commercial property sector.

It suggests the changes will lead to occupiers seeking shorter leases, increasing their ownership of building and asking for predictable RPI-linked leases.

Roger Woolhouse, head of the Leeds office at BNP Paribas Real Estate UK, said: “For real estate, this will have a profound affect as all property leases will now be recorded and visible.

“The proposed standard effectively treats the costs as additional debt for corporate occupiers, with off-balance sheet leasing no longer an option.  In our opinion, this will trigger fundamental changes in leasing behaviour, particularly for large corporate occupiers.  

“It will alter, too, the occupier/investor relationship as occupiers’ strategy will seek to reduce financial liabilities which will conflict with the objectives of developers and investors who will be looking to secure income through long lease commitments.”