Article

Six signs your business needs a property strategy

Australia /

Far from the slow and restrictive part of a business it once was, property can now flex around business goals, and a property strategy will prove it.

For companies expanding, shrinking, or being altered by market forces that they have no control over, having a strategic property plan in place will ensure that its real estate interests adjust with the business.

A strategy, which must align with the overall goals of the business, will weigh up, for example, how to manage offices around headcount growth or contraction, whether to sub-let surplus space or terminate a lease, or even how to approach an entire portfolio following a company merger.

Making all the right decisions on this front can benefit not just a company’s bottom line, but also its appeal as an employer. So when is the right time to put a strategy in place?

Here are six indicators that you need a property strategy:

  • You are affected by industry-wide changes. The automotive sector is a good example, where closure of local manufacturing operations is transitioning the sector to a sales and distribution focus. A property strategy can map out future property needs, as well as exit strategies for assets no longer required.
  • You are undergoing a merger or acquisition. The joining of businesses can result in duplication of facilities and functions. With a strategy in place you can consolidate or rationalise your portfolio, align this with business growth, and support the cultural integration being sought for the new entity.
  • You are undertaking a major internal initiative. This could include moving to shared services, or outsourcing, and therefore a need to assess future use of space.
  • Your business is expanding. A property strategy can help match up the business’s preferred style of working, property needs (including how to manage project space required for defined periods only), and how this ties in with broad growth plans.
  • Your business is downsizing. A property strategy will establish the best way to navigate contractual obligations in under-used assets, whether it be terminating leases early, sub leasing, or divesting surplus space.
  • Your current lease is expiring. Will you renew the lease? Negotiate a new contract with improved terms? Or find somewhere that better meets your budget and business objectives?

Changing attitudes to property

Lauren Day, JLL’s director of Integrated Portfolio Services for Victoria, in Australia, encourages businesses to break away from the thinking that business decisions can only stretch as far as their property assets and obligations allow.

“We are flipping that coin on its head, and talking about business-led real estate decisions,” she says.

“A property strategy is about getting in there and really trying to understand how real estate can help with what the business wants to achieve, and ensure that a company’s growth isn’t constrained just because it doesn’t have the physical space to expand, or that a business doesn’t look at ways to fill extra space just because they have it; there are always options to get rid of it” she says.

Sold on strategy

The Australian betting giant Tabcorp is an example of how a property strategy can provide clarity to a business around its real estate options in a period of growth.

As Tabcorp expanded, it had become evident that its Melbourne workplace had limitations that could potentially encumber its future plans.

However, with five and a half years still left on the property lease, and a specialised list of requirements for wherever it would eventually move to – including a television studio, race day control centre, and a data centre – the company’s management had resigned itself to the fact that a re-fit was the only choice.

Thankfully, that idea was shortlived.

Tabcorp took advantage of a tenant-favourable market to relocate to a superior office

Superior space

What Tabcorp ended up doing was moving into 12,000 sqm of superior offices at Melbourne’s Collins Square development in the Docklands, on a 10-year term.

As Joe Nicolaci, head of property at Tabcorp explains, a refurbishment of its existing premises would have provided an attractive new space, but no room to grow.

“It would have cost us $20 million to do a refurbishment at our existing premises, which would have given us significant uplift to our workplace facilities, but it wasn’t ideal. The floorplates we had were small which limited the amount of collaboration space, and adding more desks would have created tight densities.

He adds: “An underground railway station was being built virtually beneath the building so there was a high risk of power outages, and the construction work would have been tedious for our staff travelling to and from the workplace.”

In addition, detailed financials run by JLL as part of a property strategy conducted for Tabcorp, concluded that the capital costs of a new fit out would not have fully depreciated by the time the lease had expired, making the idea even less viable.

Taking advantage of a tenant-favourable market to relocate to the vibrant new Docklands precinct, while subletting its existing office space, was on the whole, a savvier option.

Tabcorp’s new office represented a major workplace transformation for the firm, with a stunning central staircase, outdoor terrace, technology showcase and over 87 rooms and collaboration spaces over five floors, enhancing the productivity and connectivity of its workforce.

Tabcorp found new space that aligned with its growth plans

Making property work for you

Tabcorp could easily have fallen into the trap of approaching its existing Melbourne office as a burden, both lumbering and illiquid, and thereby remaining anchored in a less than ideal office in an imperfect location.

But, as JLL’s Lauren Day reminds us, “the sooner businesses turn that thinking on its head, the bigger the competitive advantage they have to gain.”