Cushman & Wakefield’s 11th Annual UK Occupiers’ Conference
21 Oct, 2010, London
To shine a light on how UK businesses are approaching economic recovery and how the key drivers of change are impacting upon their real estate strategies, Cushman & Wakefield held its 11th Annual Occupiers’ Conference on Thursday 21 October 2010.
A different type of recession
Straight from an IMF financial conference, following the Comprehensive Spending Review announcement the previous day, economics editor Stephanie Flanders kicked off the conference at London’s Imagination Gallery.
The broadcast presenter outlined how the recession was investment-driven and how, unlike some previous ones, it was not created to combat inflation. She highlighted ways in which this recession is unusual in many ways such as unemployment figures peaking earlier than with past ones, and company balance sheets being more resilient.
Stephanie pointed to comparisons with Japan’s recession in the late 1980’s where, like the UK at present, the country’s economy was heavily dependent on the banking sector. She stressed that it is not just whether or when a double dip will happen. In her view, the big question is how slow the UK economy will grow and whether the policy changes being announced by the Government will succeed in increasing the speed of the recovery.
Turning to bricks and mortar, Stephanie highlighted the change to the Carbon Reduction Commitment scheme and how this in effect amounts to an additional tax upon the private corporate real estate sector. She also drew attention to how government buildings being dumped on the market will have significant implications for the secondary and tertiary markets.
An ethical approach
Moving from economics to business insights, Jo Fairley, co-founder of Green & Black’s, took the stage. The entrepreneur described how, together with her husband Craig Sams, she launched the confectionary range, providing the start-up capital herself, during the last recession.
Jo explained how ethical concerns drove the development of the business, helping it make a lasting positive impact upon the lives of the Mayan community which farm the cocoa beans. She outlined the challenges and risks involved in building a business and how she believes the four touchstones for a successful start-up company to be: product, branding, ethics and PR.
Green & Black’s was bought by Cadbury plc in 2005. Jo stressed the need to keep the founding principles of the company alive and how the environmental stance of the business has resulted in Cadbury taking a greater interest in Fairtrade. By 2011 every Green & Black’s chocolate bar will be Fairtrade, the first multi-national brand to achieve this.
Finding opportunities in a recession
Shifting the focus from chocolate to sandwiches, businessman Sinclair Beecham then gave a talk about launching Pret a Manger, which first opened in London in 1986. He highlighted the difficult market conditions at that time, presenting both challenges and opportunities.
When Sinclair set up the business during the last recession the power shifted from landlord to tenant allowing him to secure a lease on his second retail unit. He described how chicken tikka sandwiches from M&S, as well as food markets in New York, were sources of inspiration for him. Pret a Manger now has 27 stores in the Big Apple, as well as all over the world.
Like Jo, Sinclair stressed his belief in the importance of ethics to a business’s brand. Pret a Manger gives all food that is not sold each day to the homeless. Good customer service also overshadows every part of the business, and is now a fundamental factor in his new hotel venture, the Hoxton in Shoreditch, which opened in 2006. As a result of always trying to think as a customer, Sinclair has implemented free Wi-Fi, water and inexpensive breakfasts at the hotel.
What property directors need to know
Moving onto new research, Andrew Croll, Research Director at Ipsos MORI, gave an overview of the findings of a survey commissioned by Cushman & Wakefield. Over 500 corporate occupiers with a turnover of more than £25m were interviewed between July –September 2010.
Despite the fragile outlook, the survey found that the majority of occupiers (61%) are optimistic about the impact of the Government on the economic recovery and nearly half (49%) expect business to improve over the next 12 months.
Michael Creamer, Head of Client Solutions at Cushman & Wakefield, then touched upon some business issues facing corporate occupiers today. He discussed how technology, a more agile workforce and the return of sustainability to the boardroom agenda are all transforming corporate real estate. Michael highlighted how efficient technology brings huge opportunity to increase productivity and reduce costs. A reduced need for cabled infrastructure and large data centres will free up businesses to make more effective use of space and dispose of assets.
With remote working on the rise, he stressed how property directors need to recognise the changing dynamics of a more agile workforce and cater for all generations, moving towards ‘activity-based working’.
The long lag between spending money on making property more sustainable and cost-savings from decreased energy consumption is preventing many corporates from making their properties more ‘green’. However, Michael stressed, occupiers need to be prepared for increasing legislation around sustainability and its growing importance to the younger generation and impact on brand.
Matthew Stone, Head of Occupiers Strategy at Cushman & Wakefield, then took the stage to discuss 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.
With most large office-based corporates (72%) owning less than 10% of their property, Matthew stressed that there are many opportunities for businesses to tidy up their balance sheets and to transfer lease liabilities to third parties. Real estate advisers are increasingly under pressure to deliver substantial savings, ways to achieve this include relocation and extracting value from portfolios through the regearing leases and the disposal of assets.
Concluding, John Santora, Global Head of Client Solutions at Cushman & Wakefield, pointed to how real estate strategy can help deliver cost reduction in today’s uncertain economic environment. He highlighted the survey findings which indicate that big companies are getting bigger, and global companies growing more global, with 43% of respondents with international operations predicting an increase in non-UK employees over the next year. Despite the challenging business environment there are opportunities for growth and effective property strategies can help occupiers to capitalise on these.