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Manage your Portfolio

January 2012
Manage your Portfolio

Good management of the portfolio is essential to ensure that costs are kept to the minimum at all times.

Article by Gareth Harries BSc FRICS MCIArb

I write this article in mid January amidst the generally depressing news of a bleak 2011 for a large number of companies.  The country's largest retailer, Tesco, have reported a fall of 2.3% in like for like turnover during Christmas 2011 and a number of retail failures were recorded towards the end of 2011 and early 2012, including La Senza, Blacks and D2 Jeans, all of which have gone into administration.

Due to its influence throughout the commercial and business life of the country, the retail sector probably offers a fair reflection of the situation in the country generally.  The property sector is not immune and has also suffered with the insolvency of one of the largest companies, DTZ, towards the end of 2011 and the announcement in early 2012 that BNP Paribas are to shed up to 70 staff and close their offices at Cardiff and Manchester.  A number of other companies have had to make significant cutbacks and have lost staff.  The banking sector is similarly affected and the recent announcement that Royal Bank of Scotland are to shed hundreds of jobs comes as no surprise to many observers.

On a more positive note, there is some good news.  The Co-op Bank have entered into an agreement with Lloyds TSB to acquire in a large number of their branches and the Co-op retail division are acquiring a Scottish supermarket chain of 28 shops.  Perhaps the future lies in the co-operative sector!  From a property view point, the student housing market is moving along briskly and a report from CBRE indicates that £840 million of capital was invested in this market in 2011; this compares with an investment of £350 million in 2009.  Overall, rental income in this sector is up 4% on 2010 figures and occupancy rates are approaching 99%. 

All companies are looking continually at cost cutting measures and from a property view point it is important you manage your asset, whether you operate from one building or a number of properties.  It is essential you review your costs on a regular basis, as opportunities will exist to reduce rents and look at other reductions such as appeals against the rateable value. 

The situation varies on a sector by sector basis, but generally in all sectors there may exist opportunities to obtain rent reductions.  A recent report from Savills indicates there is lower occupational demand in the office market with the level of enquiries in 2011 being 50% down compared with 2010 levels.  The report indicates the market is flat in terms of overall rental value, though there is a shortage of good quality office accommodation available nationally.  This is certainly the case in the Swansea Bay area and the problem is heightened by the fact that there is very little speculative development taking place.

 The opportunity of seeking rent reductions is particularly relevant in the retail sector where most town centres have high vacancy rates and favourable deals may be negotiated with landlords keen to find occupiers for their properties to avoid having to incur rates bills and other costs themselves.  It is estimated that 25% of existing high street and shopping centre leases are to expire by 2013 and 50% by 2015.  For those companies whose leases are due to expire within the next couple of years now may be the time to approach your landlord to restructure your lease and negotiate a more favourable rent and at the same time provide the landlord with comfort of a longer secure income than the few years or months that presently remain.