Majority of UK Corporates Expect Government To Have Positive Impact On Economic Recovery
21 Oct, 2010, London
Despite the fragile outlook, the majority of medium to large corporates (61%) in the UK are optimistic about the impact of the Government on the economic recovery, according to a new report which coincides with this week’s spending review. The telephone survey commissioned by Cushman & Wakefield of 500 large UK-based companies with a turnover of more than £25m reveals that nearly half (49%) expect business to improve over the next 12 months.
The findings of the survey, which was carried out by Ipsos MORI between 22 July and 17 September 2010, show that corporates are less confident about the impact of the Government on their organisation’s business prospects with just 38% anticipating a positive impact. Corporates in the South-East are most optimistic, with 57% expecting business for their own organisation to improve over the next 12 months, whilst corporates in Scotland are least positive, with a third (33%) foreseeing improved business prospects.
Of those companies which anticipate the Government having a positive impact (192), the two most popular reasons are ‘Government is business/ private sector friendly’ (17%) and ‘positive Government policies’ (17%). ‘Cutbacks/ reduced funding’ is by the far the most common reason (49%) amongst those companies which expect the government to have a negative impact on their business prospects (101).
Over two-thirds (69%) of corporates are looking to grow their business over the next 12 months and over half (57%) anticipate revenues rising. Companies in the retail sector are most bullish, with 66% expecting an increase in revenue and 38% foreseeing headcount to increase. Across all sectors, over three-quarters (78%) of corporates predict that their employee numbers will be stable or will rise over the next year.
Medium to large corporates are more likely to lease rather than own buildings with 72% of office-based companies owning less than 10% of the sites that they occupy. Of the companies surveyed which have their head offices in other countries (115), in 64% of cases the global HQ make real estate decisions for the UK company.
Over one third of corporates (36%) are not aware of the proposed financial reporting of leases by occupiers, i.e. that all leases are likely to be capitalised on balance sheet, the draft proposals around which were announced on 17 August 2010. The proposals will require companies to record lease payments in the profit-and-loss account and future lease liability in the balance sheet. This means that the longer the lease, the greater the impact on the profit-and-loss account in the initial years. The survey findings indicate that corporates are failing to take this on board, with over half of respondents (53%) considering it unlikely that the accounting changes will change the way that they procure property. 27% are more likely to take shorter leases in future.
Only one in eight (12%) companies are considering outsourcing or relocating existing UK activities abroad in the next 5 years. Central & Eastern Europe is a target market, although Asian markets, in particular India, South East Asia and China are anticipated to see stronger interest as companies start to reconsider the benefits of outsourcing as a way to maintain costs. The findings indicate that Asia will be a major growth market for both office and industrial occupiers- with retailers focusing on Europe for expansion.
Matthew Stone, Director of Occupier Strategy UK, Cushman & Wakefield said: “Although recognising that cuts to the public sector are likely to deep, most corporates are positive about the Government’s impact on the economic recovery. They appreciate there is a job to be done and believe the future to be bright, but realise they have to endure the pain first. With many companies failing to realise the significance of the proposed accounting changes and with most large office-based corporates owning less than 10% of their property, there are many opportunities for businesses to tidy up their balance sheets and to transfer lease liabilities to third parties.”
Michael Creamer, Head of Cushman & Wakefield’s UK Client Solutions Group, said: “Despite the shaky economic situation, more than two-thirds of companies are looking to grow their business in the next 12 months. Those based in London and the South-East, as well as those with global operations, are more inclined to believe that their companies will grow. It is interesting that both Western and Eastern Europe EU and non-EU member countries are likely regions for businesses looking to outsource/ relocate and are challenging the combined might of China; India and SE Asia for certain types of outsourcing.”