Corporate Property Strategy – Northburn Partners

Corporate Property Strategy

30 Jul 2018

How to find and secure a new office in 7 not so easy steps

Further to an article written here recently, Top 5 Mistakes When Leasing New Property, this week we focus on a very specific task, and one that will be familiar to many. How to find and secure a new office space. This is one of the most common tasks businesses face yet they will perhaps have little knowledge of the process, all the more concerning when we consider that typically tens of thousands of dollars are at stake.

As with any complex exercise, if we break it down into steps it looks a lot easier. There is no “one size fits all” solution here, there are multiple factors at play, and so we are going to make a few assumptions. So, in 7 steps this is how to find, secure and create a new office. The list is in no way exhaustive, but covers the main items.

Firstly, we are assuming this office is to be secured under a traditional lease i.e. not flexible workspace but under a commitment for three to five years minimum. Many readers would know that this is certainly not the only option open to businesses on the move nowadays, in fact flexible workspace is a growing part of the overall commercial real estate landscape. But for the purposes of this exercise lets focus on the traditional office lease model.

Secondly, we assume you know where you want to locate yourself. This has as much to do with familiarity, transport, staff demographics as it does the cost of rent. Most established business will know where they want to be and where they can afford to be. Start ups perhaps less so but we will work on the assumption that the location has been identified as it works for you in terms of access, customer base, staff location (both existing and future hires) and cost. Call us if you are seeking a guide to rents across a city.

The Brief

We start the exercise by preparing a brief. We need to know when your existing lease expires (if you have one) and we need to work out what your requirement is. We are going to build up a picture of your circumstances, some of which will be made public as part of the search process and some will not. The lease expiry or other milestone is key as we are likely to work backwards from that date to determine how much time you have and, to some extent, how we go about the exercise. Its been discussed in this blog that one of the main mistakes companies make when approaching an office relocation project is they don’t leave themselves enough time. The more time available to you, the more options you have, the easier and cheaper the exercise will be. As a rough rule of thumb we allow a minimum of six months for a small business rising to twelve months plus for larger organisations. That may sound like a lot but when you know the steps involved this time can disappear quickly. Remember most leases in Australia have a make good clause in them. That means you are obliged, prior to the expiry of your lease, to make good your premises as detailed in your lease. This can involve significant work, and its got to be done before your lease expiry. It may only be a lick of paint that’s required to your existing premises but more likely than not you will be required to bring it back to a defined state, clear of your existing fitout and with services and finishes reinstated to a “base building” condition. This expensive “sting in the tail” at the end of a lease catches many by surprise, one of the reasons we seek to negotiate out of make good at lease end wherever possible. It is certainly possible, and commonplace, to negotiate a cash settlement with your existing landlord relieving you of your make good obligations but this is not always feasible or desirable. So, we need to assume in our programming that we have a make good to do prior to that key lease expiry date. The amount of time we allow for this is dependent on the size of your office and the degree to which the work is to be done, as specified in your lease, but even a small office may require two to four weeks of make good work.

The brief will determine when you need to move by, allowing for your existing lease expiry, make good and whatever other factors influence timing. The brief will also address the type of space you need or can afford, the budget for fitout, location, building facilities, parking needs and, of course, how much space we are seeking. The type of space will be dependant on cost and the nature of your business. Professional services firms, multinationals and other large concerns may be looking for space in premium buildings with views and high end facilities, others may seek more function and are less concerned about views but still need proximity to public transport. As mentioned some of this information will be made public because part of this brief will be released to the property market i.e. to real estate agents and building owners. The public brief is part sales document and part Request For Information. What we are, in effect, doing is selling you as a prospective tenant to building owners while generating competition for your business as a tenant. By creating a competition for you as a tenant we are seeking to secure the best possible lease terms for you. So, the brief includes some key details of who you are, owners like to know who they are leasing their buildings to, and specifies your requirement in terms of office area, building type, parking and so on. We may, however, hold back on some key details, such as how long you would be willing to commit for. This we can keep up our sleeve.

Go to Market

This single page brief is released to the market and we provide a date by which agents must submit suitable buildings for consideration. The agents must provide in response, details of properties they believe to be suitable. Those details would include the address, floor space, whether it is a part or whole floor, parking, amenities, rent, outgoings and so on. I wont go into too much detail as to what the brief includes and requests but suffice to say we want to cast the net wide but at the same be very specific about your requirements. We might be a little vague about the space requirement yet be very prescriptive about the technology requirements of a building, for example.

After a couple of weeks we will, ideally, have a small pile of submissions to sift through. A lot of what we receive will not meet with the brief but some will and it is those we need examine in detail. We will work our way through these submissions and draw up a short list for inspection. The inspection process is one of the more time consuming aspects of the process but essential. There is no substitute for seeing space in the flesh because only then can you appreciate the aspect of the property and get a sense of whether it is right for you, just as you would if you were inspecting a house. The objective is to get to a point where we have, ideally, three or more properties that meet with your brief. We then go about getting offers on these and begin negotiations. We want the market to see that you have a number of options open to you, all of which are viable. Now, this may be stretching the truth a little but remember we are seeking to generate competition for your business as a tenant. We can’t negotiate when there is only one option that works for your business and the owner of that building knows it.

Shortlisting

We have now identified two or three tenancies that look like they work for you. The location is right, the size looks right as does the price point. What now? Well, we can now employ a few tricks to confirm suitability and get the best deal. Using some negotiation we look to develop the offers on these options. It is typically easier to increase the level of financial incentive a lessor will offer to a prospective tenant rather than lower the asking rent for example. In some cities this “lease incentive” can be a significant percentage of the total rent payable. In fact, the incentive can be sized to pay for a large part of the cost of fitting out your premises, or it can be taken as rental abatement over the term of the lease, or a combination of the two. We will also often enlist the help of an architect to prepare plans showing how your company could be accommodated in the spaces we are considering. This exercise, “test planning”, is a useful tool to determine how you fit into a given space, or not as the case may be, and will give you another insight into each of the properties. Two office spaces of the same size can have markedly different efficiencies when it comes to putting people into them. We will also prepare a cost plan at this point as there is little point in proceeding with the lease of an office if we don’t know how much it will cost to fit it out. We build this cost into our financial comparison of the shortlisted property options.

Heads of Agreement

Once we have checked the suitability of the premises in terms of size, have obtained second round offers and undertaken whatever other due diligence might be required we are in a position to finalise a Heads of Agreement (HoA) or Statement of Commercial Terms. While this document will contain as much detail as can be initially agreed it should fall short of being a legally binding document. The Heads of Agreement is simply an understanding of terms agreed, not a substitute for a lease. The lessor will commence preparation of a formal lease once a HoA has been signed and, typically, a deposit has been put down. It is at this point that we introduce a property lawyer to act for you in the lease preparation and negotiation. While we may have agreed the commercial terms it is essential that we enlist expert legal advice when it comes to the legal ramifications of a lease. The process of reaching agreement on a lease after a HoA has been signed can take several weeks, more time in our program. During this time the lessor and lessees’ respective solicitors will nut out the detail of the lease, we will assist with this process. The client needs to prepare for lease execution by arranging bank guarantees and insurances as negotiated and agreed.

We have now made a non-binding commitment to a property and have put down a deposit, the latter will be pay for the preparation of the lease and go towards the first months rent. The property will be notionally taken off the market and we can start the clock on commissioning a set of premises for use by your business.

Program, Cost Plan and Design

While we negotiate, in conjunction with your property lawyer, the detail of the lease we can get started with the design of your new office interior. Even though we may have found some premises with an existing fitout its very likely that it will need to be altered to suit your requirement. Perhaps more likely the premises will be empty, bar carpet and ceiling. That means we will build a fitout customised to your requirements. This will need to be done within the rules set by the building owner, it is after all their building, and the rules set by local authorities and government. Each of these parties has their own agenda. The owner doesn’t want you to harm the fabric of the building or indeed bring down the tone. Local and Commonwealth governments require us to adhere to safety standards, detailed in the National Construction Code, and to provide premises that are accessible i.e. that the design does not discriminate against those with disabilities. As such the plans will need to consider all of these factors.

We can now also get fairly specific about programming because one of the main variables is out of the way i.e. how long to find suitable premises. The program is important because it’s going to identify the stress points going forward in terms of timing but also when we will need the input of all stakeholders, including the management of your business and the various consultants required to deliver your new office. The first step, the design of your new premises, is going to require more input from the client than any other phase of the project. It’s good to identify this so those people can prepare for this extra workload. The program, and the cost plan, will be updated regularly as the project progresses. These are two key documents for the successful delivery of your new office.

Before we go too much further we need to decide how we are going to procure your new office fitout. This is a big topic in its own right and I don’t propose to delve into it here but suffice to say there are several methods of procuring a fitout and the choice as to which is most suitable will come down to the complexity of the build, the value and how much time is available to you. However, what we can say is that the test planning exercise conducted earlier required that you begin the design process already. We needed to take a simple brief for the architects to prepare these test plans so we may already have the first drafts of the layout design.

It is now time to dig much deeper and prepare detailed architectural plans for pricing and, eventually, construction. In conjunction with your chosen architect or designer we need to select furniture, finishes and fittings. In other words, every aspect of your fitout is selected and documented, even when items are being reused from your current office. The design process goes beyond what you can see of course. We also need to design alterations to the building services. By services we mean the fire services in the building, the plumbing, the air-conditioning and the layout of power. These make the premises both functional and, critically, compliant. Other engineering aspects of the fitout can include the structured data cabling, the audio-visual infrastructure and so on. As you can gather this design phase is intense and not limited to the look and feel. In a sense we have several, converging, paths on our program, architectural, engineering, IT and compliance. The objective is a complete set of documents, detailing all aspects of your fitout, approved by you and ready to build. Along the way we will redesign, reselect and cut back on the design such that we stay within budget.

Ideally, we will arrange lease commencement and access for fitout works such that we can commence building when the design and pricing are resolved yet we don’t have any period where rent is being paid on two sets of premises, new and existing. This comes down to careful planning and negotiation throughout the process.

The Build

Paradoxically, when we get to the stage of commencing the build of your fitout the pressure eases for the client. Of course, for the builder that’s not the case. They get very busy. But if we have done our job properly, the design is resolved and coordinated, contracts are in place, the lease is signed, then the pressure eases for the client. They can now focus on planning the big event, the move.

For the sake of brevity, I am obviously skimming over some key points here. The contract choice and negotiation with the builder, the appointment of a client-side project manager to act on the client’s behalf. All of these are necessary stages. The detail of the design and build is enough for its own article.

The Make Good

As mentioned the make good is one of the components of your relocation program. A quick glance at your existing lease tells us what your obligations are here. That’s our starting point. We want to exit the premises as cheaply and easily as possible. We can calculate how much it’s going to cost to do the make good as detailed in the lease. That’s our starting point. Anything less than this figure is a win. If your fitout is reasonably decent and you’re not taking half of it with you to the new offices then the owner may be happy to let you leave it in place on the basis that it makes re-leasing your premises easier for them. After all, we know how expensive fitouts are and an existing fitout could save an incoming tenant a lot of money, perhaps the difference between them leasing the premises or going elsewhere. So, we use what we can to negotiate as low cost an exit as possible. Ideally, no cost, but more likely we settle an amount that is less than the cost of actually doing the make good.

As you can imagine there are quite a few pitfalls along the way with the above process. As with any property transaction expert advice is essential.

Northburn Partners provides tenant representation and client-side project management services. Our clients are SME’s, not-for-profits, listed Australian companies and multinationals. We are proud of our independence and work exclusively for end users of property. We provide this service across Australia.

Please get in touch if you have a lease expiry, property requirement or would like to discuss this article. We look forward to being of assistance.

Ashley Patterson

Top_5_Mistakes_When_Taking_On_New_Commercial_Property

Corporate Property Strategy

18 Apr 2018

Top 5 Mistakes When Taking On New Commercial Property

Businesses are in the market for property when there is; a forthcoming lease expiry on office space, a decision to expand existing or open new premises or a decision to buy, sell, or downsize. Avoiding the following simple mistakes will hold you in good stead when you seek a seamless transition from your existing site to your new base. These steps are, for the most part, common sense yet it’s surprising how often they are ignored.

Below are the 5 most common mistakes business make when finding commercial property & the steps needed to avoid them:

1. Give Yourself Plenty of Time

The sooner the project starts, the more options are available. Having more options typically translates into a better outcome and a lower cost. There are no hard and fast rules here but for a typical office lease expiry project, from search to handing over a fully commissioned space, a minimum of six months is required for a small and simple project rising to twelve to eighteen months for larger or more complex projects. Even more for new buildings of course.

Example

Company A, with a 500m2 office requirement in Melbourne, continued to put off commencing a search for new premises, eventually pushing the button on the search about three months out from the expiry of their lease. The thinking was that even if they couldn’t find anything suitable in the near term they would simply ask their existing landlord for an extension of time. Their landlord did indeed provide them with extra time, one month only, and they were forced to pay a premium on settling their obligations to make good their office premises. As they had no time to do the actual make good works, only a financial settlement was open to them.

Given the business had so little time the only option available to them was an office with an existing fitout in place. This was far from ideal, as the layout would obviously be designed for someone else. As the client had no time to negotiate the deal they were forced by the lessor, who was fully aware of their predicament, to accept the first offer. They then planned to modify the premises to suit after they occupied. Another premium was paid to undertake works outside of normal working hours as they could not be done during operating hours. So, the decision to defer the search cost the client several times over; a penalty on the make good of their previous space, a premium on the rent of the new space as no time was available to undertake a proper competitive bidding process and a premium on the cost of altering premises to suit.

2. Prepare a Business Case for New Projects

This will require essential research that can be used both to confirm costs for the business planning exercise and as a lead into the due diligence project to follow. The business case needs to examine all facets of a new venture, but from a strictly property perspective, an understanding of the local market, trends and pitfalls needs to be present. Knowing what to allow for in terms of building works and the consultants you will need to engage will prepare you from the project’s commencement.

Example

As with any new venture we need to know in advance of committing time and money that the investment will pay off, or at least given a number of assumptions the case for committing stacks up. This is as true for a property project as it is for a start-up. We see companies custom building factories and warehouses when careful negotiation with owners of existing properties for lease would provide suitable, albeit not perfect, premises for a fraction of the cost. When the covenant is strong and the terms right, most landlords will consider significant alterations to their premises in order for them to provide specialised facilities for industrial or warehouse users. Purpose building facilities is costly, time-consuming and will rarely provide an asset that returns the investment, given it is built with only you in mind.

3. Do Your Homework

Is your proposed usage of a property permitted?

This is less of an issue with office premises but a serious consideration when it comes to manufacturing or logistics property. Make sure you know the list of organisations that need to be consulted to confirm your ability to use the property the way you intend.

Is the property heritage or does it contain heritage elements? Are there any statutory organisations that will influence how you use a building? What adjacent works or development are proposed in the future?

Ignoring any of these questions can cost you dearly.

Businesses that lease premises without checking the building’s permitted uses, can lose a lot of money. This happens all too often. What complicates matters further are the varied zoning laws that effect certain areas. What’s permitted in one local government area may not be permissible in the same zoning in a neighbouring area. These differences come down to local rules.

At Northburn Partners for example, we have seen buildings leased for manufacturing that have been used for warehousing, as the intended use was never permitted. No one checked. This is an expensive and time-consuming mistake.

4. Make Sure You Consider the Built Environment, Not Just the Property Transaction

This is frequently overlooked, as it is often assumed a property professional shares both skillsets. Many instances exist where businesses have leased or bought property, only to find their investment is riddled with unforeseen issues. This is because insufficient attention was paid to the built environment during the due diligence phase. Hazardous materials, non-compliance, leaking roofs (common with industrial property) and insufficient power are all costly and time consuming to fix, so talking with a specialist can save you time and money.

Agents and owners will try and avoid these details. They will often be the last to know and care about any issues with the building. They want the deal done as quickly as possible so they can close the contract.

Example

Last year Northburn Partners was engaged to convert two adjacent small warehouses into a single large retail store in suburban Sydney. We were appointed after the premises were leased i.e. the property deal was done. This was a little unusual considering we tend to start with the deal, confirm specifications, and then implement changes. This was also after the owner of both properties had undertaken the works he agreed to do under the lease. It became apparent immediately that the deal struck was far from mutually beneficial and did not satisfy our client’s interests. To combine the two properties into one, the owner had agreed to cut an opening in the shared wall, with a ramp to cater for the nearly 1 metre difference in the floor level between the two buildings. These works were part of the ‘contribution’ made by the lessor to the lessee as an incentive to lease the premises for 5 years.

Our initial investigations revealed that the ramp was non-compliant. A quick check of the lease showed one key word missing from the list of the lessor’s works. ‘Compliant’. Further investigation revealed the lighting installed by the owner was of such poor quality, it was next to useless. To top it all off the roof leaked. None of these items were included in the lease, but the lawyer who negotiated it was not at fault. It wasn’t his job. A proper investigation of the building should have been conducted at the same time and as part of the lease negotiations. That requires a property advisor that understands the built environment.

5. Don’t Rush Into a Contract with a Builder

Know your options in terms of how to go about delivering whatever works are required to make your premises functional and attractive to work in. Project timing is once again crucial.

Build your design and construction team early. Northburn Partners recommends building teams and commencing design before the final documentation is signed. Giving yourself a head start enables you to meticulously select procurement methods and attend to any issues that arise before you commit.

There are multiple options when it comes to procuring building works. For instance, a simple office fit-out project that needs to be done quickly should be done by way of a design and construct contract with the builder receiving only a basic guide in terms of layout and design. This wouldn’t necessarily work on complex projects or where the brief continues to evolve after works commence. Regardless, checks and balances are needed to ensure the client receives fair value for money and that work is done in a timely manner.

Deals with builders executed by handshake can be disastrous, and are often the by-product of a previous relationship. You are then entirely dependent on the goodwill of someone who is seeking to profit from your business. This is a precarious position to put yourself in, regardless of whether there is a previous connection or not.

Allowing yourself plenty of time to weigh options will result in better design and a fairer contract.

Lack of experience, planning and understanding when securing new premises can cause enormous damage to the business and its reputation. However, the problems and costs covered above only address the initial stages of dealing with commercial property acquisition. Implementation and management require more than an elementary level of understanding and should be discussed with a team of professionals.

For when you need further consultation, we at Northburn Partners are experts at developing and implementing property strategy and project management across commercial, industrial and retail property, for users of property.

Top_5_mistakes_when_taking_on_new_commercial_property_paterson_property

We find, build and develop new offices, factories, warehouses and large retail premises. We have been doing this for over 20 years. We are independent of agents, owners and developers so our advice is impartial.

Our team of experienced professionals are well versed in both property and the built environment and know the tricks of the trade when it comes to property negotiation. This means our clients have the peace of mind that comes with knowing we are protecting their interests first and foremost.

Get in touch with us today & see how you can cost-effectively search, invest, build and create the workplace fit for you.

Ashley Patterson

Corporate Property Strategy, Case Study

16 Jul 2018

How does flexible workspace change the way we approach a lease expiry?

Further to an article written here recently, Top 5 Mistakes When Leasing New Property, this month saw an announcement that may mark a milestone in the evolution of commercial real estate in Australia. One of the larger coworking space/serviced office providers, or simply “flexible workspace” providers as there is little now to distinguish between the two, leased an entire building, or at least all of the office space in it. The, as yet to be built, Daramu House in Sydney’s Barangaroo precinct will house 10,000m2 of flexible workspace for the large US based provider WeWork.

As you probably have noticed the flexible workspace market is booming. The quantum of flexible space grew by over 25% in Sydney alone in the last 12 months, not including the Barangaroo deal. Flexible space now accounts for 2.5% of all office space in Sydney, according to a recent Colliers report. Compared to many major cities this is low, suggesting there is a long way to go yet.

There is nothing new about the desire for flexibility. Small businesses, start-ups and those seeking project space have been using serviced offices for decades now. The demand has grown as prosperity is fertile ground for new ventures, and technology has allowed us to work anywhere. The long-term lease becomes increasingly hard to reconcile with our fast-paced business environment so the ability to up size, rapidly, proves to be very attractive. This is only part of the story. Community is what it’s all about for many providers with some offering a mini version of LinkedIn for its members, allowing them to communicate and collaborate online as well as in their coworking spaces. The attraction of flexible space will continue to grow.

Coworking Office Space

So how does the growth of flexible workspace impact on the way we approach the expiry of a company’s lease over commercial space? As discussed here previously a forthcoming lease expiry requires careful planning and, ideally, plenty of time. We begin with a business case for the move. What are the objectives? What growth do we factor in? How do we cater for the demographics of staff and customers? What aspect of our business is fixed and what is flexible? It is this last question that takes on new meaning when we start to consider how our approach to a lease expiry may change given the increased prominence of flexible space in the market.

The process of determining how much space and where is driven by a company’s history, a change in the market for its goods and services, its success or failure in tapping that market, the demographics of the staff, the location of customers, suppliers and amenities. The list goes on. More often than not change in the amount of space a business occupies from one lease to another is incremental as opposed to meteoric. There are obviously exceptions to this rule but they are exceptions. The same could be said of location. A business that has grown in North Sydney, for example, is perhaps likely to remain there. Dramatic change in location could result in the loss of staff or customers. Flexible workspace may change these patterns.

Building owners are now factoring into their plans the provision of flexible space to their tenants. This permits companies to lease space in the knowledge that additional meeting rooms, work areas and other facilities are available to them should the need arise, giving them the comfort that comes with knowing there is room for growth should that be a one-off requirement as a result of a project or an ongoing need for additional external meeting rooms. The theory is therefore that tenants can lease “core” space under a traditional lease agreement i.e. a fixed amount for a fixed period and “flex” space on an as needed basis. This provides flexibility with the quantity of space required but, obviously, not the location as it is specific to these buildings and their tenants.

Office Leasing

We can now approach a lease expiry with the ability to cater for flexibility in both size and location. That is by incorporating into our requirements “flex” space via a Service-level Agreement (SLA) with a national or global flexible workspace provider. Of course, companies have been using serviced offices and coworking space for years to cater for their needs in new markets or for project space but that’s not what we are talking about here. Instead to go to market, in a competitive tender situation, for flexible space as part of, and in conjunction with, the search and negotiation for “core” space under the usual RFI process. The market for flexible space is both diverse and competitive and even has its own brokerage firms. We can tailor the tender process to suit the needs of company sales teams or those who are often out of the office, for whatever reason. The requirement can include the type of facilities needed, hot desks or breakout/lounge areas for example, but also the level of security both for belongings and data, the latter via dedicated routers and switches housed in the flexible workspace provider’s server room. The SLA would then align with the lease over fixed space and complement that space. Key to this is the possibility that inclusion of flexible space in a company’s workplace strategy may well lead to a situation where we have greater flexibility in where a company locates fixed space, possibly in lower cost locations closer to the homes of staff members. The outcome, a significant reduction in the cost of occupation and greater flexibility in how we work.

Further colouring the possible use of flexible space in a property requirement is the current state of the commercial property markets. If vacancy rates for office space are low, as they currently are for Sydney and Melbourne CBD’s for example, the use of flexible space in a requirement provides companies with an opportunity to limit the impact of low vacancy rates i.e. move the market in favour of the tenant to some extent. The next decade will prove interesting for an industry short on disruption.

Northburn Partners provides property solutions to users of commercial and industrial property. Our clients are SME’s, not-for-profits, listed Australian companies and multinationals. We are proud of our independence and work exclusively for end users of property. We provide this service across Australia.

Get in to uch if you have a lease expiry, property requirement or would like to discuss this article. We look forward to being of assistance.

Ashley Patterson

Corporate Property Strategy, Case Study

11 May 2018

The Top 8 points to consider when buying or leasing industrial property

Following on from a recent article recommending that you do your homework and prepare a business plan when taking on new commercial property here we look at some of the short-term and long-term considerations when buying or leasing industrial property.

First up, the short-term considerations, and by short term we mean those factors that will have a meaningful impact on your decisions within 3 to 5 years.

Buying or leasing property for your own purposes i.e. property you will occupy? Then we need to be sure we are able to use the premises for our intended purpose.

The answer to the above question will be determined by others, specifically local government and councils, because they determine what type of business is permitted to operate on the land or in the property you are buying. So, first up, we need to know what businesses can operate in the premises. A town planner can assist you with this, although the information is in the public domain sometimes it’s better to have an expert’s interpretation of what you can and can’t do as the stakes are obviously quite high. Once we know our use is permitted we can establish what conditions might apply to that use. Again, our town planner can guide us here, but for a definitive list of conditions related to our use we may need to actually apply to local government for that ruling. In Australia this process is known as a Development Application. It may be a requirement that your leasing or purchase of the property be made conditional on being granted this approval. Depending on the nature of your proposed use other agencies may need to be involved; the Environmental Protection Agency, the Foreign Investment Review Board (in the case of overseas investors), state governments and so on. Time spent in reconnaissance is seldom, wasted the saying goes. This is very true when it comes to property.

What plans and developments are proposed for the area?

In an evolving urban environment infrastructure is constantly changing. This is not just about roads but rail, power, communications and other utilities will impact on the functioning of your property and its attractiveness to prospective buyers and tenants. Information relating to proposed plans is available on a national and local government level. Again, our friendly town-planning consultant is of great assistance here but we need to dig to find out what is being considered, or has even been approved, both in terms of your prospective neighbours and the wider area.

Buying Industrial Property

What am I inheriting with this property?

This is perhaps the single most common oversight is no thorough due diligence on the property in advance of signing the deal. What seems to be very obvious sometimes needs to be pointed out. Proper technical due diligence on a prospective property will consider:

The presence of hazardous materials, and for the most part we are talking asbestos here. This will require the commissioning of a hazardous materials report. In fairness, this is really the responsibility of the current owner to provide as it relates to work, health and safety but many owners will not have one. We need to be aware of what exists on the site as it may have a bearing on whether we rent or buy at all never mind the cost of removing it.
What compliance issues exist with the property? Are fire services compliant, does the property cater to current codes in terms of disabled access? If not, then we need to know what would be involved in making this right.
How will proposed legislative changes impact on the viability of your property. Requirements for compliance are constantly evolving. It is important to note where the risks lie. A competent building consultant should be able to alert you to these risks.

How much do I need to invest to make the property usable or lettable?

The answer to this affects the purchase price, of course, but also what you are willing to pay by way of rent. Ideally the property ticks all the boxes as far as compliance and statutory matters are concerned, see above, but what do we need to do to make the property work. Its almost a given that this will be more than you think because, while we tend to consider the obvious; fitout, decoration, maybe lighting, we easily forget the need for security, communications into the building, signage and air-conditioning alterations or upgrades and so on. In other words, if its not obvious it may well not be considered. A capable project manager can assist with pointing this out.

Buying Industrial Property

Industrial hot, retail not!

Dramatic changes are taking place around the way we shop, consume and move. The world of commercial property has undergone seismic shifts over the last few years and no greater an example of this is the rise of online shopping. Where investors would once upon a time have gone into retail stores they are now building distribution centres. Bulky goods centres, warehouses and industrial property generally has benefitted from this. This trend shows no sign of abating and prices reflect this. There is a shortage of good light industrial property. Traditional retail on other hand needs to find a new purpose as small shops are going to struggle. The talent lies in repurposing these going forward and perhaps the future of the retail, and malls, lies in providing dining, entertainment or other experiences rather than a place to shop.

Now for some longer-term considerations. By longer term we mean with a 10-year horizon.

Parking to be a thing of the past?

Driverless vehicles will change the way we live our lives in ways that we probably can’t fully comprehend yet. For example, long commutes to work could become much more tolerable as we can work or sleep on the way. What happens to all that parking in the city, or on your land? In fact, if property comes with parking then we instantly have an opportunity to consider repurposing this in the coming years. A building with its own car park now provides development potential, depending on statutory controls, over the longer term. And for that matter those statutory controls will need to be revisited. It is expected that we will see real changes in the way we live in as little as ten years thanks to the arrival of this form of automation. This will inevitably impact on commercial property.

Things to consider when leasing property

Automation generally

Increasing automation in commerce means we are likely to find that the needs of people in terms of facilities and location will reduce as there will simply be fewer of us working in warehouses, distribution centres and factories. That probably means that location will be less of consideration when it comes to a building as we are less driven by the demographics of our workforce. The provision of goods and services will be increasingly automated. That’s not to say we will be working less of course. A generation ago the arrival of personal computing was going to herald the arrival of a new age of leisure where we expected to be working fewer hours per week. That didn’t turn out as expected!

What else?

As we consider property we need to consider what changes are afoot and how they might impact on uses and therefore values. We know, for example, we are going to see an ever aging workforce. Having three generations in work will become the norm. We know that medicine is letting us live longer although, crucially, more advances are being made in our physical wellbeing than our mental. Dementia, and its treatment, is to become a major influence on society. The list goes on.

The more knowledge we have about the condition of property and the more informed we become on how our working world is changing, the better the decisions we make. Northburn Partners guides users of commercial property through this landscape.

Ashley Patterson

Corporate Property Strategy

05 Feb 2018

Disruption in Commercial Property

Revisiting an article, I wrote back in 2013 (The Future of Work), recently got me thinking about disruption – specifically disruption in the world of commercial property. While we have witnessed incredible revolutions in the way we communicate, travel and live, thanks to the sharing economy, these disruptive changes have not been reflected in how we deal in property. Specifically, commercial property. Learning from insights provided by the “proptech” market, we can see that most innovation can be found within the residential sector.

This may, in some way, relate to the nature of commercial buildings – large, fixed and filled with tenants on long term leases. Innovation around these commercial centres has been realised through technological innovation and administration – not disruption.

How property is transacted is perhaps the best example of the slow pace of change with commercial real estate. To lease office premises, you have to follow a process that has not changed in decades. Beginning with a phone call followed by a meeting with a middleman in a suit who has a key to let you in to the premises. Now, of course, that office space can be found via Google – so there is technology in the picture, but nonetheless, a middleman in a suit with a key is there to unlock your property.

At a recent property industry event in Sydney, a panel of office market experts was asked by the moderator if they believed we needed office leasing agents anymore. The senior leasing agent on the panel fielded the question well but the nervous ripple of laughter across the room, half of whom were agents, was telling. This role may not be consigned to history in the near term but it will certainly be redefined.

Back in 2013 I anticipated that we would have embraced remote working more than we already have. It’s certainly grown in popularity, but the fixed place of work seems to be more resilient than ever, in some organisations it’s growing. My suggestion that office-sharing apps such as ‘Liquidspace’ would become the Airbnb for office users, has not eventuated. Why is this the case? Like Airbnb, it seemed an ideal opportunity to marry unused meeting rooms and workstations with those who need just that on an hourly or daily basis. Presently, it would seem the majority of spaces available on the app are simply serviced office spaces. A sales mechanism for serviced office operators was not the original idea but that seems to be where it is at the moment.

It is with the serviced offices where we are seeing perhaps the greatest change. The sector is booming and the nature of those offices has come a long way from the early timber panelled corridors flanked by room after room. Serviced offices convert the traditional, immovable and rigid office lease into short term and flexible space. The operator carries the risk and the user pays a premium for that risk. The next step must be that commercial building owners will become serviced office operators themselves. Market demand will force them to. This has already begun but it will become mainstream. The sheer potential for reducing waste and energy that goes with shared environments means that this kind of disruptive initiative is worth pursuing.

Ashley Patterson February 2018

Ashley Patterson

Corporate Property Strategy

03 Jul 2014

Business Cycles vs Office Leases

The traditional office lease paradigm can be cruel when it comes to cyclical businesses; the vast amount of sublease space seen in recent years sits in testimony to this. When you are in need of additional space so is everyone else, when you have too much so too does the rest of the market. Being lock step in such a market means that the demand always works against you. A solution? Reduce your businesses exposure to the market by transferring some of the risk to those who are willing to take it on. This can be done by distinguishing between two types of space; the first, what we call “Core Space”, falls under the typical office lease albeit with a minimal requirement. The second type of space, Flexible or “On Demand”, is where companies cater for the peaks created by project work or cyclical work. This is particularly relevant to those involved in the resources or infrastructure sector at the moment. The idea is to minimise the risk of finding yourself with too much space by determining what is the Core demand and what is demand resulting from short term needs. By short term we are referring to anything below 2 years.

We minimise the amount of Core Space through the adoption of Activity Based Working (a potential 30% reduction compared with the standard open plan layout), outsourcing non-core functions, although this is a contentious subject, and finally maximising your employees mobile and home based work capabilities through technology.

On Demand space is that which is determined to be project or crisis driven, cyclical or mobile in nature. It is this space requirement where we attempt to transfer risk. We already know of organizations that are willing to take on our property risk. For the most part they are serviced office operators but increasingly we see building owners who are willing to incorporate shared space within their buildings as an incentive to prospective tenants.

If a user of corporate office space has a large enough requirement they are in a position where they can negotiate with serviced office operators to collocate with them or sway their decision in terms of locating nearby on the promise of an ongoing, if variable, requirement. Regus, the world’s largest serviced office operator, provides facilities in a number of public spaces, not just lobbies of buildings. Their decision on the location of new serviced offices has also been swayed by the locations and requirements of their larger clients.

The market for short term space is even online now with a number of apps marrying up the needs of corporates and business travellers with unused workstations and boardrooms. This market recognizes that many such facilities sit idle the majority of the time.

The driver behind these initiatives is, for the most part, financial. However we already know that the era of long-term leases is under threat from a younger generation of workers. If we can’t reasonably predict under a business plan what our space requirements will be in five years then this should be reflected in our appetite for traditional leased space.

Ashley Patterson
Director
Northburn Partners Consulting
www.northburnpartners.com.au

Ashley Patterson

Corporate Property Strategy

29 Oct 2013

The Future of Work

October 2013

The Future of Work?

At a recent seminar on workplace design I sat and listened to a senior interior architect extolling the virtues of a building his firm had designed for a bank. The building was a ground scraper, a 150m long, low rise workplace for thousands of people. The architect had introduced the latest in workplace thinking, large areas devoted to collaboration, a fully WiFi enabled building and roof top garden, a flexible workspace. His pride in this was evident, and justifiably so. However, as the talk progressed there was, it seemed, a realisation amongst the audience and that what we were witnessing was not the future of workplaces but a throwback, a glossy, gift wrapped version of a 1970’s workplace. Thousands of workers clocking on at 9 and clocking off at 5.30. How on earth could this constitute progress? There was the problem I thought. We are still defining work as a place rather than what we do. An architect could only define that as a physical space. We are limited by our existing definitions of workplace as to how we think about the future.

The cultural, demographic and technological changes that we will witness over the next few decades will perhaps alter our notions of work beyond recognition. The paradox is that architects are less able to design the future workplace because the future “workplace” is not a physical space but rather a combination of technology, home, temporary pay per use meeting space, agreements, trust and yes, offices. We have, since the industrial revolution, defined work as a single physical space and therefore the design of workplaces has been by those trained to do so, architects and designers. Moving forward they will play a smaller, but more defined, role. This will be a good thing as this will free them up to work their magic on spaces unencumbered by concerns re technology or process but they will not lead. This will be done by an emerging breed of change enablers and management consultants.

As life expectancy and retirement ages increase we will shortly face the real prospect of four generations in the same workforce becoming the norm. Each with its own set of values and culture. Organisations will need to define more clearly than ever who they are yet be less able to say where they are. A truly mobile, young workforce will operate from home, their neighbourhood café, their head office and temporary meeting and workspaces such as those offered by Liquidspace. Their time in what was once a main place of work may be limited only to training and both formal and informal meetings.

When faced with establishing a new business we are going to focus on agreements, both in terms of space providers and between company and employees. Our need to trust in relationships will grow as we can no longer rely on even junior staff being supervised. The key with our physical environment will be flexibility. The challenge here is marrying the needs of finance i.e. fixed and predictable costs with the needs of a fully flexible work environment i.e. pay per use space, short term leases and fluid fitouts. Corporates will adopt fully flexible attitudes to space utilisation, few fixed partitions, more meeting spaces of all shapes and sizes, quiet spaces and, above all, connectivity.

While technology will come to define much of the future work space the irony is that little will be evident. The spread of highly protected data centres around many cities combined with low cost fibre means there will be little point in hosting our own servers other than for the most paranoid organisations. This will be essential beyond the security issue as so many of the users of this equipment won’t be anywhere near the servers anyway.

The modern workplace strategist must wear many hats, architect being only one of them. We will come to see the centralised place of work as conflicting with what more of us want out of work. Something we do, not where we go.

Ashley Patterson