How are developers squaring up to the challenges of the economic downturn? Gareth Williams, development director and co-owner of Midlands-based Opus Land, says ‘….it’s all about thinking outside the box’.
These are challenging times for the property industry. There is no room for self-doubt or introspection. We need to play to our strengths. We cannot ignore the fact that the downturn strikes at the very core of who we are, and what we do. If we as developers don‘t buy land and build on it, what are we to do?
The answer is simple. We need to be as confident, flexible and dynamic as any other commercial operator. The property industry isn’t really renowned for its sophisticated marketing and sales techniques. But times are changing. We can no longer hitch a ride on the back of a seller’s market. We need to get back to basics; re-visit the notion that ‘the customer is king’; respond to and anticipate buyer behaviour. We need more than ever to review what we offer as a product, how we offer it and at what cost.
From the way we let existing space to how we explore and exploit new opportunities – the emphasis is on creativity and innovation. In short we need to ‘think outside the box’. How we attract new tenants to our schemes, as well as retain existing tenants, is no longer a simple matter of fixed term leasing for a fixed price. Take it or leave it – is no longer an option.
Flexibility and choice is the only way forward. From shorter leases and fresh lease terms to lower or phased rents, the tunes we can play are many and varied. In addition, we can negotiate longer rent-free periods and even remove or modify break clauses. Being more flexible in our dealings and more creative in our ‘packaging’ could make the difference between success and failure.
Building and maintaining relationships is a medium to long-term investment. Bringing occupiers ‘on-board’ (or keeping their custom) is THE imperative. As the relationship grows – so too will the opportunities for business development. Empty space does not generate income. Without income there can be no growth only burden – as holdings become more and more costly to retain.
At the Opus 40 Business Park in Warwick, Opus Land has just re-geared the lease for the leading communications company ‘telent plc’. By effectively forgoing their option to break at five years, telent positioned themselves well for negotiating favourable terms and choose to extend their lease from 10 to 15 years on a ‘term certain’ basis. This significantly increased the value of our investment.
Over at Birmingham’s Saltley Business Park, Opus has recently successfully negotiated three lease extensions. This crucial hat-trick represents a valuable contribution to the group’s overall revenue stream. In so doing, these agreements not only demonstrate commitment by the tenant but also reinforces a sense of self-belief in Opus, that a little lateral thinking really can achieve results.
On a site where several units have still to be let, it is important to accentuate the positives to prospective tenants and scheme participants e.g. a hive of activity; a thriving working environment; an attractive place to do business. And the formula is already working with thriving businesses drawn to relatively safe havens – as opposed to being lured onto the rocks.
A better understanding of occupier needs and a desire to meet those needs in the terms of the lease is fundamental to successful letting. Commercial property is a latecomer to the party, when it comes to actually listening to the advice of marketing professionals. But better late than never.
Why should selling and marketing property be any different from selling and marketing any other product? We can no longer rest on our laurels. The time for arrogance is passed. We must look to the basic principles of effective marketing as well as review the way in which we manage client relations. Rigorous monitoring, analysis and evaluation will help us secure competitive advantage and give us the edge at a time when our peers may be focussing more on managing the present than creating the future.
But it’s not just about how we retain and maintain existing relationships and safeguard current revenue streams. Versatility together with a willingness to adapt and change, are equally important when developing new business and planning new projects. As the market bottoms out, there are definitely ‘deals to be done’. But our approach to negotiation will have to change. With landowners disinclined to part with their assets when perceived values have fallen by some 50 per cent, even a guaranteed pre-let cannot leverage the prices landowners are seeking. Landowner 1: Developer 0 perhaps? Not necessarily.
New opportunities will result from a far more innovative approach to development. Going it alone will be replaced by effective partnering and mutually attractive joint ventures. Working together with landowners, we can achieve a win-win situation where the developer and the landowner both take a cut of the profits, when a scheme is sold on. In addition, we are partnering with banks whose portfolios reflect a disproportionate degree of distressed debt. We can either assist the institution itself by bringing in new equity or support existing borrowers who are unable to balance the ‘loan to value’ equation.
At Opus we are now targeting existing assets and seeking to optimise rental income to service debt. Over a period of three years or so we seek to enhance a property or scheme in a significant way. This could mean either retaining a key tenant, letting new space or refurbishing a suite ready to let. Either way, we add value to the venture. A project venture which yields no scope for maximising its worth is ‘dry’. As a property company we need to avoid this at all costs, especially in the current climate. Every site is bought for a reason, but extraordinary times call for extraordinary measures. What was a use – becomes a ‘change of use’. What was a problem becomes an opportunity.
When Opus Land acquired a pivotal city centre 1960s asset in adjacent buildings on Birmingham’s Waterloo Street, the intention was to transform the space into state of the art Grade ‘A’ office accommodation. Demand was already starting to dip. A ‘developer turn-key’ deal with Whitbread Hotels and Restaurants, together with planning consent for a 152-bedroom hotel facility generated a far more viable proposition in the current climate. The latest Whitbread Premier Inn – the country’s largest and fastest-growing hotel brand – will be dubbed ‘Birmingham Central’. A great move for Whitbread and a smart move for Opus.
Sometimes income can be generated in the most unlikely of ways. All you need us imagination and vision. At Opus 9 – Opus Land’s 33 acre industrial regeneration site [J9 of the M6 at Wednesbury] – a proposed public art and advertising icon, ‘Sandwell Gateway’ will represent a substantial revenue stream in its own right. Measuring 80 metres by 20 metres, it will be one of Europe’s largest permanent hoardings. The income it generates will not only pay for its own construction and maintenance, but will also contribute to the completion of the scheme itself. In addition it will assist a number of associated community projects in the area.
If there is anything positive to come out of a depressed climate economic or otherwise, it has to be that crisis focuses the mind. It forces you to go back to basics – to keep it simple. But more importantly perhaps, is that it speeds up the creative process at a faster rate than might otherwise have been the case.
It’s self- confidence and not arrogance that wins the day – it’s flexibility and creativity that will give you the edge – that will enable you to find opportunity in adversity.
And so the single most important message to bear in mind when you next take a look at the books is this: when the going gets tough – the tough get lateral.