THIS is a difficult time for small businesses and landlords. Landlords are small businesses and have suffered a fall in value by some 30% of their investment value.
In general, rental income has fallen by about the same amount, with some tenants having to vacate, which leaves no rental income at all.
In cases where the rateable value is £15,000 (rising to £18,000 from April 1, 2010) or above, the landlord also pays empty property rates as well as the holding costs for empty property.
As a result, landlords have lowered rent, offered incentives of rent-free periods and, where necessary, have improved the property to make it more attractive to potential tenants.
As the recession bites, the demand for commercial property has reduced, thus the tenant has assumed a stronger negotiating position.
Tenants as small businesses need to be highly competitive in business to survive the recession.
I have in this column made reference to the costs of occupying property being second only to the cost of employing people.
Since people are the most valuable asset to a business, it is important to avoid cutting or losing them, so it is surprising that the first thing that many companies cut in hard times is hours and staff. It is much better to look at reducing your property costs.
The Royal Institution of Chartered Surveyors (RICS) carried out research a few years ago which showed that UK businesses – large and small – we’re wasting about £13bn each year on property occupancy costs.
Reducing such costs will go straight to the bottom line and make the business immediately more competitive, or increase profits.
Having highly-competitive small businesses is also very important to the region’s economy. On behalf of the RICS, I have been working with Business Link to help people who want to start a new business learn how to deal with property matters.
They need to know how to search for property, how to negotiate the rent and a lease, and what problems to look out for. There are the pitfalls which, if not dealt with properly at the outset, can create black holes of expenditure at a later date – probably when the business can least afford it.
Through Business Link, I am also giving workshops to established businesses under the general theme of “Keep Your Business Fighting Fit” but in particular on how to “Reduce Property Costs and Increase Profits”.
The workshops are for three hours and will take place from 1.30pm on Monday, January 25, at the Village Hotel, Silverlink, North Tyneside and Thursday, January 28, at the Xcel Centre, Newton Aycliffe, County Durham. To reserve a place or for more information email firstname.lastname@example.org, call 0191 281 5777 or visit www.eventsnortheast.co. uk, which has workshops on other topics which may be of interest.
For an investment to perform well, a landlord seeks a stable tenant who can pay rent on time and maintain property in a reasonable condition.
Some landlords and their agents ask terms that may not be fair in the current market. It is important to ensure that there is fairness in what is agreed and that it is realistic to maintain good, long-term landlord and tenant relationships.
Simple to say but, as you might expect, notoriously difficult to put into, and keep in, operation.
The RICS is addressing this very issue in 2010 and hoping to shine a light on such matters for the benefit of small businesses.
It is an initiative that will stress the importance of a well-balanced commercial property market and one that we need to pay attention to keep the North East region competitive.
Kevan Carrick is partner in JK Property Consultants and policy spokesman for RICS North East