Expand or Contract

November 15th, 2020

Expand or Contract

Expand or Contract – Flex or Commit?

The global commercial real estate market is reeling. For a market that operates on precedents, a respiratory disease on a global scale has literally ripped the bottom out of the home of many commercial trading entities.

Feeling the effects

Commercial real estate be it office, industrial or retail property has formed a cornerstone of business in any location for centuries. This might range from a high-rise New York office housing a top 50 legal practice to the corner shop on Booth Avenue. In the retail market alone, according to EG’s Radius Data Exchange, nearly 1bn sq. ft of retail space in the UK could be handed back to landlords in the next 5 years. Office wise, the need for social distancing has seen our transport hubs at the height of rush hour become as busy as a 4am metro, whilst office buildings become tumbleweed ghost towns.

For a few months, the take-up and disposal of business space ground to a halt, and large advisory firms used to transactional turnover, lowered the shutters, took up the government’s furlough scheme, and prayed that some form of normality would return. Many businesses have ceased trading unable to pay their rent, whilst other more fortunate companies have secured support from their landlords to help them through.

Not all bad news

Meanwhile, it was not all gloom. Going back to our prior examples in this article the corner shop has thrived, sure it shifted more toilet rolls than it would in a decade and become an expert in local home delivery but it has adapted and the local community has recognized its presence. Over in New York, our legal practice has dusted off its disaster plan, flicked the switches, and hey presto its lawyers are working from home with little or no obvious signs they are not in the office. From what we hear these legal practices are even doing quite well.

The bottom line is that businesses have to adapt to a changing market place, it’s what they do as part of their day to day existence from a trading perspective, but it also means they can change how they operate with their teams.

Adapt to survive

A surge in sales of laptops and printers for the homeworker together with a reliance on online meetings has kept the wheels of industry turning but the days of a place a business can call home are not dead. Far from it. Despite localized lockdowns, where feasible, businesses are beginning a phased reintroduction of flexible working. This could include two days in, three days out, or appropriate spacing provided to ensure employees stay safe. However, the collaborative impact that networking (or lack of it) with your fellow workers has if anything been more than proven during the pandemic.  For a business to thrive, people must interact physically, and deals need to be done.

Learn the lessons

Expand or contract? It is unlikely many businesses, except the fortunate few, can expand at present but it does mean that the lessons learned will enable smarter working. A large international insurance company we work with is currently evaluating the need for all its office space. It does not need to lay any employees off; it just knows its operating model is far from efficient. Long-term institutional leases are likely to become a thing of the past for many end-users and as with the insurance company, acquiring flexible managed (high quality) space is looking like the preferred business model.

On the counter side, a recent acquisition we undertook for a US-based company that needed the support of a soft start, resulted in a structured lease with a substantial rent-free period. Either way getting the right advice will help ensure that Covid 19 does not compromise your company’s operating base.

Future success

Finally, to end on another positive note, a former pharmaceutical site in East London, where we have been providing strategic property advice, is about to enter the final stage of its transformation. The site, once a thriving facility that manufactured the drug that ‘saved’ Churchill’s life during the war did, up until the end of the last century, employ 4,000 skilled workers. A change in the owner’s global procedures saw its manufacturing shift overseas. All was not lost: a careful regeneration program, a collaborative approach between the private sector and the local council borough has seen the creation of London’s largest data center (useful for that disaster plan switchover!), the establishment of East London’s major science and technology park and imminently to be announced the investment by a US capital company in London’s newest film studio. It would seem some of Marvel’s superpowers (some of the blockbusters were filmed here) have rubbed off despite the pandemic. Long may the investment continue!

Coverwood Chartered Surveyors are an independent specialist commercial real estate advisor. With services ranging from the search and negotiation of commercial real estate throughout the UK to the review and valuation of existing commercial property portfolios, Coverwood is ideally placed to advise occupiers and real estate owners accordingly. For more information contact commercial@coverwoodsurveyors.com

If you are relocating during the Covid 19 pandemic Briars are happy to help play our part in delivering support and our HR team provides international mobility services, including work permits and employee tax planning to help smooth the process.  To find out more, please feel free to contact us at info@briarsgroup.com.

Kate Jolly

Kate co-founded Briars in 1991 with Andrew Brierley. She specialised in tax law and today continues to advise clients on international operations, particularly land, expand and exit! In her spare time Kate is a Past Master of the City of London Guild of Entrepreneurs and a Director of CCARHT (Cambridge Centre for Applied Research into Human Trafficking).