Firms cautious about property spending, warns report
FEWER firms expanded their property portfolios over the last six months, while the weaker economic outlook has pushed up the number of companies planning to reduce their property holdings, according to new research.
The latest CBI/GVA Grimley Corporate Real Estate Survey reveals a balance of +15% of firms which said they had increased their property holdings in the last six months.
This, however, indicated a slower rate of growth than in the previous survey (+22%) and some way below expectations (+21%).
The twice-yearly survey, conducted between March 12 and April 4, also revealed that 20% of firms now planned to reduce their property space – a marked increase on the 12% of firms contracting their property in the past six months.
A further 27% still expect to expand their property holdings in the next six months, giving an overall balance of +7%.
The survey asked firms how the credit crunch had affected their ability to do business and found, unsurprisingly, that by far the greatest impact was 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.
Only 1% of respondents said they thought the credit squeeze offered them any opportunity to derive value from their portfolio.
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 and utilities companies find themselves nearly as burdened (83%) followed by the financial services sector (73%).
Karen Dee, the CBI’s head of infrastructure, 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 90% 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.”
