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In his report "Wasted Space" prepared
for the Royal Institution of Chartered Surveyors,
he suggests that cutting this wastage could increase
trading profits by as much as 13% and that this could
be achieved through efficiencies in working practices
like hot desking, better planning and more visibility
of property costs.
The UK is among the most expensive in the world in
commercial property terms with taxation alone accounting
for £15billion each year or 5% of total UK tax
revenue. It is unsurprising therefore that property
is the second most expensive cost to a business after
payroll and yet it rarely reaches the boardroom agenda
until it is too late!
Many businesses are now beginning to feel the pinch
of the property burden due mainly to inadequate planning
and a failure to understand the business implications
of property costs and liabilities. Cable & Wireless
recently shocked investors over it's "garbled
explanations" of £2.2bn of property and
network leases and its board was criticised for ineptitude
at a time when £35billion has been knocked off
the company share value. This indicates the full extent
of the problem of accounting for lease liabilities
and illustrates why there are urgent calls for more
visibility of property on the balance sheet. It also
highlights the inadequate provisions made by businesses
for managing property liabilities.
Cable & Wireless is not alone. Many companies
simply view property as a necessary means to an end
and only review property costs when there is a fundamental
change in business direction or a problem of liquidity.
Long leases, upwards only rent reviews and limited
break clause options all conspire to hamper flexibility
and increase the risk profile of being in business.
The problem is that very few companies are really
equipped to deal with property at the strategic level
and lack of planning often brings with it a range
of nasty surprises.
Fitting rapid business change into leasing patterns
and changes in property cycles all requires vigilant
and informed management to avoid the risks and maximise
the available opportunities to limit exposure to the
threats. Increased competition, slow demand and long
sales cycles coupled with increasing costs can all
drive a business to reduce staff numbers but this
often leaves the residual burden of unwanted property.
Other specific issues like the Disability and Discrimination
Act, the implications of asbestos removal, and the
forthcoming business rates revaluation all simply
add to the burden of management.
Whilst rent commitments on leasehold properties may
be viewed by some as the equivalent of fixed - rate
debt, the difference is that with careful planning
and good advice much can be done to maximise flexibility,
improve liquidity, reduce the risk and place the control
of property back in the hands of the business. |
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