It’s strange how often emotions can get the better of us, even in business.

People’s attitude when negotiating a property deal comes to mind especially. It is not uncommon when people are buying a home that they go over their budget when they find somewhere they really like.

Negotiating a commercial property lease is no different. I recently dealt with a case where a business was in negotiation for a great commercial property in a prime CBD location that suited them to a T. However, the (more…)

While the media and New Zealand public are focusing on the shock of job losses from a raft of companies moving overseas, we’re forgetting one of the key areas where costs can be saved… property.

There is no question it is bad news to see such job losses, and it has me wonder was it completely necessary? Are there opportunities that businesses in New Zealand fail to exploit in the way they manage their property lease portfolios?

We all know the key thing in business today is thinking smarter. With property the number two cost on balance sheets, do companies really investigate the full potential savings in thinking smart about their property leases and operating costs?

Labour costs are not all about the wages people are paid. The rule of thumb is to multiply a person’s income by two and a half to get the true cost of employing them. I believe that cost can be significantly reduced if we examine the property component cost of labour. More and more people are working from home. Are we thinking smart about how much space we need? Are there savings to be made here? Are there opportunities to negotiate more attractive lease terms and conditions?

I believe not enough attention is paid to ways to cut property costs. The cost of labour, having efficient plant and technology are always big ticket items. But potential savings in property costs is frequently overlooked or poorly analysed.

Moving operations to third world countries is always going to be attractive when they have low compliance costs around things such as health & safety and building standards. It’s time to get wise about our property costs, and maybe that can impact on the decisions of companies to go offshore.

In a period when business confidence levels are at a record low, companies are looking for ways to improve the bottom line. I believe that most companies have heaps of overlooked opportunities to achieve a better outcome on leased property.

Even companies not thinking about relocating their operations offshore will benefit financially from a more thoughtful, strategic approach to the property line on their balance sheet.

We all know it is a complete shemozzle at the moment. However, Parallel Directions predicts there will be plenty of opportunities for good property leasing deals. But you need to be extremely careful who you lease from. Every property owner is at a different stage of their risk cycle and considered advice is crucial. Undoubtedly, behind the scenes, with banks’ security rules being tightened and interest rates on the up, there will be some property developments that will struggle and lease discounting may well become a feature of the market.

Fear and panic have a big impact on what we choose to believe. It’s often human nature to think the worst, and create self-fulfilling prophecies.

So in this case how bad is the so called crisis in the financial markets and the economy?

Well there’s no doubt that its going to be tough, but I stop short of comparing this to previous crashes and crises.

Many people are looking back to the late 80s when the fallout from the financial market crash in New Zealand was huge. Today we have a completely different kettle of fish. While on the one side there is gloom and doom about interest rates, tight financial markets and a slowing economy, on the bright side we have a strong labour market, growing population, and we’ve already done the hard yards of restructuring our public service and improving conditions for business. The fundamentals of being in business in New Zealand have changed dramatically since the 1980s. I believe we are far better placed to ride out the storm.

In the commercial property development and leasing game, there’s no doubt it is going to be difficult to get finance and it is going to come at a higher cost. This means yields for property investors will suffer. So these investors will look to rental growth and work to force the issue in lease renewals and rental negotiations. Landlords are not going to be particularly happy or jolly and will try to screw the best deals they can. So it will be critical for commercial tenants to be well represented to resist. It will end up being the old equation of supply versus demand. There will be some failures in commercial property development and vacancies will be popping up, so after a few years of a landlords market, there is a good chance of more balance between landlord and tenant.

It is also timely to look closely at operating expenses, space needs and the impacts of rising fuel costs on property location.

Well, buying and selling property is not really my bag, but what I can tell you is some of the definite pluses for leasing in a depressed property market and economy. It’s simple really. With a lease, if things get tight, you can get out quick. If you own the commercial property you operate from, your asset is not liquid, and most likely it will take you a lot longer to sell than it will take to negotiate out of a lease.

A lot of businesses are re-evaluating their costs as the economy shudders, and as always, ability to have cash in hand is critical. Leasing commercial property gives you more flexibility with your assets, and boy is that something that’s highly attractive in a nervous market.

I often wonder how often a business really means it when they say, “Our staff are our greatest asset” in their values statement or marketing.

It’s a bit like answerphones which have the message, “Your call is important to us” I don’t think many people really believe that.

It is so important to really walk your talk, especially with staff. And especially in today’s market where young professionals pick and choose their employer.

So what does that have to do with leasing commercial property? Well, plenty.

The other day I heard a top presentation called City Dating from architect Anthony Flannery. He says cities must really compete to be desirable for a highly mobile, choosey and talented professional class. The location and character of your premises, inside and out, is going to count a whole lot. These days we have to have workplaces that are seductive to attract and retain the best. A people-friendly place, close to home and other attractive city destinations is a must to attract the ‘bright young things’ currently heading overseas in droves.

I heard the other day how a very talented young lawyer in his 30s refused an offer from a firm because they didn’t have a sustainability policy!

A strategy to find the right place for your business, fit it out well and ensure it is attractive and environmentally friendly will make all the difference.

So how can we put Auckland on the map as a desirable destination? Commercial tenants can have a real say by demanding better conditions; to put pressure on the city fathers and property developers to have the city be well designed, aesthetically pleasing, environmentally sustainable and ultimately a great place to work and hang out!

In 2008, all the increased talk and media coverage about sustainability is set to go to a new level, as government and consumers alike start to demand action.

In New Zealand, government procurement policies and new standards around carbon emissions will increasingly become the concern of CFOs as they grapple with the likely impacts on the balance sheet, and strategic direction of their organisations. It’s time for debate to end and action to begin, whether we like it or not, to integrate sustainable practices as smart and savvy business practices.