What do tough markets and tough rentals mean for us as property users?
What actions, if any, can we take?
Grin and bear it... one tactic is to tough it out, knowing full-well that the cycle turns and "it'll all be OK" again sometime in the future. For us that's akin to leaving a ton of money on the table, passively watching your margins and net profit shrinking. Not recommended at all.
Get busy, focused attention, RE-SET... Alchemy's preference is to use the current turmoil to deeply evaluate what space is needed, how it is used and what it should cost.
And the upside can be huge - companies can shave 10-30% from their occupancy costs through focused interventions along the following lines:
Understand exactly what you've got, what it is costing you (including all the not-so-obvious factors like parking, rates & taxes and electricity) and how that space is used. This kind of overview allows you to behave more strategically in what can be very high-pressure, tactical lease negotiations. First, occupy all your current space to the maximum before leasing additional premises and dispose of any surplus property as quickly as practical. Second, audit your costs thoroughly to secure savings (we've seen differences in electricity costs/sqm of 150% in the same type/age of building, owned by the same landlord). Thirdly, choose your battles - do you need all your back office staff in high-rent Sandton, or could they be relocated to a significantly cheaper (but maybe less glamourous) node? Or maybe they just work from home a bit longer....But on the other hand, is the resultant cost saving more valuable than the synergies of co-location?
Get rid of what you don’t need: if a dud store is costing you money, cut it from your portfolio as soon as you can, either through sub-letting or (yikes) paying a cancellation fee - as my grandad used to say "rather a nightmare ending, than a nightmare without end". Cut your losers and cut your losses. There’s one caveat: A company's space conveys a very specific message, in particular the office entrance and public spaces where one interacts with prospects and clients or, in a retail context, your flagship stores. Branding here plays such an important role, that if your firm does need to downsize, try to economize elsewhere, rather than downsizing the brand-building aspects of the client-facing elements.
Business unit charging: people value what they pay for, so charge business units overtly for their space. You'd be surprised at how much more efficiently they use it...
Introduce new working practices. Historically cheap space in SA means we've been laggards in adopting new ways of work such as hot-desking and hoteling. All that has changed with our COVID-induced monumental "work-from-home" experiment. Did this enforced practice work for your business? Is it worth solidifying as the New Normal for your firm? I like to engage my team face-to-face, but other types of businesses, with a heavier concentration of Millennials, may be just fine with a distributed work-force.
"Get professional help". While I hear this phrase a lot from my wife when we're in vigorous debate, it also holds true in property. A DIY book-shelf might be adequate for your garage, but you wouldn't want to muck about building your own lounge suite.
And so it is with the analysis of a property portfolio, where we've seen time and again that the assistance of an expert, tenant-only property advisor can reap huge dividends for end-user MDs and FDs. If you're trying to cut costs, get someone in your corner who knows the rules of that game and can advise you accordingly.
It all boils down to having a portfolio view, a thought-out perspective on how best to leverage property as a business asset.
So, use the current crunch and the inevitable scenario (re)planning that’s happening within your business to create or firm up your overall property framework - it'll help you make intentional - not reactive - decisions regarding your property matters.
