Flexibility - the way forward?

Roche Retail beat of retail's greatest challenge in Norwich by beating the credit crunch

Over the past two months, since Credit Crunch 07, the papers have been filled with reports of burdening debt and talk of global recession. If this is the case, and I do not believe it is, then in property terms we may we see yet a further change in the relationship between landlord and tenant.

Over the past decade there has been a marked shift in the leasehold market. Institutional leases of 25 years are now extremely rare, even where there has been specific design and build projects. Occupiers generally seek to maximise flexibility and this is more apparent when the economy looks like it is due to slow down.

There are certain exceptions to the rule, with retailers for instance seeking longer leases to allow them to write off their fit out over a period which makes it cost effective. Likewise where a manufacturing process is based in a property, which entails a high start up cost, due to mechanical fit out, these types of occupiers will also need a longer period to write off their costs.

However office occupiers and industrial businesses which are transient tend to seek shorter leases, or ones which provide break clauses and the ability to break the lease if required. Start up business, which are an essential ingredient to the British economy, and therefore the property industry, often require the ability to move premises quickly. Hopefully the move is to enable growth, however it could be down to business failure. This flexibility has to be recognised as a requirement by property owners, and is in many cases already is. There are a number of serviced office providers, including the likes of Regus and Targetspace, along with companies providing business units such as NWES. These owners have recognised the need to provide occupiers the choice of a standard lease or one offering easy in, easy out terms. In addition to owners providing the space, there are now a number of brokers who deal in this sector of the market, and with the internet marketing and promotion is far easier and more cost effective.

The potential for a global slow down may mean that businesses are more cautious. If landlords can and are able to embrace change they should be able to fill voids by offering what the market wants. It must however be pointed out that flexibility does come at a cost, with higher rents to compensate for the uncertainty that landlords face. In addition the benefits of longer leases most not be forgotten with the security that they offer and the opportunity for businesses to be established in a certain location.

On balance there needs to be a mixture of opportunities for occupiers, with a mix of properties for longer term leases, coupled with those which provide the flexibility that many businesses require.

Sam Kingston

Date Added: October 16th 2007