How to put your firm into the right place

Property is an overhead as well as an asset, so companies should devise a strategy for making the best use of space.

Engineering will experience a drop in employment of 300,000 in the period from 1998 to 2009, according to a study by The Institute of Employment at Warwick University. Companies will be faced with considerable surplus property assets.

The property a company operates from represents a significant overhead as well as an asset, so every business strives for the right space, in the right place, at the right time and right cost. Without successful corporate real estate management, many businesses will fail to achieve this.

A property consultant will take the company through a process that focuses on three key areas. First, the business must be aware of the amount of floor space that it occupies and which properties are surplus. The properties’ value, operating costs and future maintenance liabilities must also come into the equation.

Within the property portfolio, freeholds, leaseholds and sub-lettings need to be identified. Each leased property will have its own clauses, rent-reviews and expiry dates; there will be key dates to serve notices (this also applies to sub-lets) which need to be understood. The market value of the properties must also be known.

Once the ins and outs of the portfolio have been established, the second step is to consider the company’s future requirements based on its business plan, which will include any need to contract (or expand) manufacturing. Factors to consider are the amount and type of space needed to fulfil the plan, when it is needed and where it would ideally be located.

The final step is to devise a property strategy, which should always be an integral part of business planning. Possible options include selling surplus land, consolidating the existing business, moving to a different property or region if it does not affect distribution needs, releasing freeholds or making use of break clauses or lease expiries.

A property review in action

A management buy-out of part of a large international group in 1998 acquired 117 properties with 42 freeholds and 75 leaseholds, spread all over the UK in various types of property, including specialist buildings with differing lease terms.

After reviewing the business, the new owners drew up a strategic business plan that proposed pulling out of certain historic markets and focusing on others.

In implementing that plan, the company reduced its number of properties from 117 to 50, which included nine surplus properties, and a shift away from freeholds to release capital. The transition was achieved through a mix of business and property elements: 25 properties were transferred as part of business disposals, 17 were sold with vacant possession, six leases were surrendered, two leases were assigned or sublet, 15 were vacated on expiry and two were ended using break clauses.

The 50 properties now comprise 14 freeholds and 36 leaseholds. Of the surplus properties, two have been sold for valuable redevelopments (conditional on the granting of planning permission), three have been retained for their future development potential, one leasehold has been sublet and three are being marketed.It was only by going through each stage of the evaluation process that such a successful transition was possible.