COMMENT Walking through Birmingham city centre at the moment is a confusing picture. Whether it’s Colmore Row, New Street or the evening hotspots of Bennetts Hill and Temple Street, it feels busy. There are people in the bars, restaurants and shops. Thursday is the new Friday, and weekends see young people, families and adults travel in to enjoy the city.
Events like the 2022 Commonwealth Games delivered a much-needed boost to Birmingham and its businesses following the impact of Covid-19. More recently, UK retail sales rose by 0.5% in April 2023, with good weather seeing people defy high inflation to shop and supporting an increase in consumer spending. Retail footfall was also higher than in the same month in 2022.
However, look through the mirage cast by the early summer sunshine, and the situation on the ground for corporate occupiers is much different.
Facing the squeeze
The current operating environment for all businesses is challenging.
Costs are rising and incomes squeezed. The past couple of months have seen several Birmingham hospitality businesses announce their closure, citing difficult trading conditions.
The challenges those corporate occupiers are facing are not exclusive to Birmingham. They also largely stem from macroeconomic factors spanning utilities, high inflation and the affect this has on a business’s operating costs and consumer spending more widely.
There is no easy solution to these problems, many of which are global in nature.
The focus for corporate occupiers – in Birmingham and nationally – must therefore remain on building resiliency within their property portfolios and working them as hard as a possible.
Difficult decisions
The first step corporate occupiers can take is progressing an in-depth review of their properties and lease agreements. A key focus of this review should be on identifying upcoming lease events, including strategic break clauses or leases due to come to an end.
By returning to their leases, occupiers can pinpoint opportunities to open negotiations with their landlords, with the aim of establishing new terms that may more accurately reflect the current market and its volatility. This shouldn’t be seen as a conflict, but rather as an opportunity to re-evaluate and move forward in a way that is viable for both parties.
These lease events may also call for more difficult decisions to be made.
It may be that exercising a break clause and terminating the lease is the best decision. The key to working a property portfolio effectively is knowing when a location is no longer right. This could mean moving, downsizing or leaving an area entirely.
Conversely, a lease event can also bring opportunities to secure a new term, and longer occupation, at thriving locations – something landlords would typically welcome.
Another key consideration for occupiers, especially when taking on a new property, is around green lease drafting. Green provisions are becoming standard practice against evolving legislation, including Minimum Energy Efficiency Standards, which are expected to become stricter over time.
Occupiers must be aware that green lease provisions may see additional requirements placed on them – operationally and financially.
While green lease clauses are not contentious, careful consideration is needed to ensure a workable solution is found that allows environmental targets and legislation to be met at the same time as delivering benefits to both the occupier and landlord.
The right package
For larger corporate occupiers that may have multiple agreements with a single landlord, we are seeing more “lease packages” being used effectively. This technique involves multiple leases being negotiated as a part of a package, with the parties working together to achieve an outcome that works for them both.
A reoccurring theme found in many of these is a willingness and need for landlords and occupiers to work together. The current economic landscape is impacting both parties – putting pressure on occupier businesses and, in turn, their ability to take space, as seen in Birmingham where there are vacant units, including several anchor locations.
Increased collaboration between occupiers and landlords isn’t a silver bullet. It’s an important starting point though, and an opportunity that must be maximised in Birmingham as it looks to fuel its growth journey.
CBRE’s latest UK research report, Which City? Which Sector?, spotlighted retail, offices and life sciences as powerhouses for real estate in Birmingham. With the strongest population growth outside London, global businesses relocating to the city, and consumer spending expected to increase by 2.35%, Birmingham’s long-term trajectory is only upwards.
But for the city’s corporate occupiers focused on the here and now, it’s critical to keep reviewing your property portfolio and ensure it’s working as hard as possible.
Beth McArdle is co-head of the corporate occupier group at Shoosmiths
