There is no doubt that the last twelve months have been extremely challenging for property professionals involved in the commercial sector. We have seen a significant reduction in the value of commercial property which, in isolation, is not necessarily a bad thing. However, we have also seen the number of property transactions reduced to a virtual trickle as a consequence of falling confidence in the sector combined with a dearth of bank finance.
What is now clear is that while the Government is doing all it can to stimulate the economy with fiscal incentives (including the controversial empty rate relief and the Bank of England significantly reducing interest rates), the next twelve months are likely to be even more challenging than the last.
As a consequence of the reduction in property transactions, professional services firms in the commercial property sector must address how to survive large falls in their fee income. A number of national and international agencies have been reducing head count over the last few months in addition to a significant wider review of their overhead base. Furthermore, a number of large commercial agencies have gone to the capital markets seeking additional cash to shore up their diminishing balance sheets.
However, it is not specifically the falling values of the property market that are causing the most problems to professional firms, it is instead the significant fall in the number of transactions. To survive the downturn, property professionals must start thinking about more innovative ways of increasing the number of transactions and generating fee income:
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There have been some signs that the number of transactions is already changing by virtue of the declining value of sterling. Increasing numbers of overseas investors are now taking an interest in buying property in the UK as they are seeing discounts of up to 50% compared to twelve months ago. Furthermore, with lenders now looking at many distressed situations, an increasing number of properties may be forced on to the market.
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Incentivise occupiers, who within the medium term (up to five years) will come to the end of their lease and are looking to move, to relocate early. Ensure this is coupled with proactive liaison with property developers and investors about opportunities to let the increasing amount of empty space now, or soon to become, available.
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Property professionals must strive to maintain their client base by becoming invaluable to them. One area of increasing importance is valuations, particularly where property owners have a significant amount of bank debt attached to their properties. Valuers must demonstrate to their clients a good understanding of the market and the underlying values of properties in light of the fact that there will be little comparable evidence available to them in arriving at a reasonable value. Banks are utilising reduced loan to value ratios and the resulting breaches in lending covenants as an opportunity to increase borrowing costs. It is therefore essential that property owners have a strong property professional with a good understanding of their properties to support them.
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Property professionals involved in property management which has historically been the Cinderella department of many commercial agencies, but is now a steady source of income, can help maximise revenue by forging closer links with their clients. By advising them on some of the key issues they are facing you may be able to help in exploiting the maximum income from a property.
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Business rates are a significant burden to companies. The issue of a property's rateable value and the calculation of the actual amount of rates payable are both available for challenge and in many cases there have been significant savings achieved by a property's owners. Over the coming months property professionals should suggest a review of their clients' portfolios to determine whether this area is a potential way of reducing their overheads, however small.
In considering how property professionals can maximise their income in these difficult times, the key will be identifying income opportunities where they previously weren't expected. The most effective way of doing this is to keep as close to current clients as possible and meet with them regularly. Not only does this help in the identification of new opportunites, but it strengthens the bond and ensures that you keep your clients throughout the downturn, and emerge with a stronger relationship on the other side.