You could assume that the knock-on effects of the recession of the early 1990s must be over. However, for many of the firms that took property leases during that period, a new challenge is approaching – in the form of a lease expiry or tenant's break clause.
Ten years ago, the property market for offices in central London was in crisis. In the late 1980s, the City and Canary Wharf began to develop millions of square feet of office space to accommodate growing businesses in an optimistic, buoyant marketplace – partly the result of the “big bang”, Conservative Chancellor Nigel Lawson's banking, insurance and equities market reforms. The building boom spread through the whole of central London and the wider south east region and, when the markets plummeted at the beginning of the 1990s, the capital was left with more than 40 million square feet of vacant office space.
With so much available space, the market became a tenant's paradise. Keen to let the space, landlords were signing leases on terms that weighed heavily in favour of the occupier, often for comparatively short terms, with long rent-free concessions and tenant-only break clauses after five or ten years.
Many of those leases and break clauses will reach maturity in the next two to five years. Those businesses with tenant's break options will face the decision whether or not to move to new offices – perhaps the space they occupy is the wrong size, in the wrong location or simply doesn't provide the right image for the company. The companies that took short-term leases outside the protection of the Landlord and Tenant Act may not even have a choice but to relocate. Either way, moving a business to new offices is a major operation that requires careful analysis, planning and implementation.
The process of relocation has become a major business and many of today's corporations take advantage of the corporate real estate services offered by the larger firms of property and management consultants. However, the typical central London occupier does not always fit into this corporate mould.
Property occupation is not always given the priority it deserves, although with the exception of the company's employees, it is probably the most important asset. Many companies don't realise until too late that they should have addressed the issue of potential relocations much earlier in the lease cycle, and lack of time and expertise means that they often make hurried, uninformed decisions and end up in the wrong space or in the wrong location, with lease terms that are far from ideal.
Furthermore, businesses relocating in today's market could be faced with a shock. The market could not be more different from ten years ago – new, high quality office space is in short supply and occupier demand is at its highest for decades. Funders and developers, cautious after the recession, are reluctant to develop large quantities of space on a speculative basis, preferring to pre-let and build-to-suit. With many buildings needing at least a two-year construction programme, even with the benefit of existing planning consent, it is evident that occupiers should start to think about their move at least three years before they need to vacate their premises.
Our experience has shown that a move needn't be traumatic and that it's perfectly possible to secure the right space, in the right location, on terms that work for your business. On some occasions, staying where you are might be the right outcome – your existing space might be made more efficient, for example.
When facing this type of decision, companies should take into account many issues before they even begin to form a strategy. For instance, in what direction is the business heading and what aspirations does the management have for the future? What is the occupier's position and relationship with the landlord and any sub-tenants? What rent review, dilapidations or other landlord-and-tenant issues are there? For companies that need to move to new space before their lease expires or before a break clause can be implemented, there are other potential problems, such as the sub-letting or assignment of existing space. These factors must be taken into account, together with the prevailing property market and wider economic conditions.
No waste of time
Using a corporate real estate services can ensure that the search and the move happen smoothly, leaving the client free to concentrate on running its own business.
The process of relocation can be profitable for your company, and it doesn't need to damage your state of mind or impinge unnecessarily on valuable business time.