July 2020 - The IFT

IFT National Conference – Commercial Property Update by Mark Bayley

Property costs are typically the second highest on a Company’s balance sheet and represents a great opportunity for cost reduction initiatives.

The UK Commercial property market has been through turbulent times recently as occupiers have been forced to close their properties and this has resulted in a reluctance by many to pay their rents.

Industrial property seems to have weathered the storm well in terms of rent payments being made to landlords. This is probably because many occupiers were able to maintain some trade/manufacturing from their premises in socially distanced small staff bubbles working shift patterns.

In contrast, retail and hospitality seem to have been the hardest hit with many either entering into insolvency or having ongoing conversations with their landlords about their rent payments. Many are seeking to negotiate moving to turnover rents where the income they generate is shared (as a percentage) with the landlord as rent.

Office occupiers have also had to close their doors and many of the large corporate occupiers (Standard Life, BT and Google) are not expecting their staff to return to the office until next year. The Chief Executive of Barclays recently stated the era of a single office buildings housing several hundred staff members in city centres may be a thing of the past!

So with so much stress what can be achieved if property costs represent a great opportunity to reduce overheads. The first has to be rent.

The Government has stepped in with the Code of Practice for Commercial Property Relationships (published in June 2020). This voluntary code asks landlords to act reasonably, swiftly, transparently and with good faith. It is a useful document that helps occupiers to understand some of the opportunities available including full or partial rent free periods, deferral of rent for a certain number of rent payment periods, monthly as opposed to quarterly rent payments and or conversion from market rents to turnover rents.

Other opportunities include the re-gearing of leases where there is maybe a break clause or lease expiry. This is particularly powerful where there are common landlords and you can negotiate across a portfolio of properties through surrendering a less profitable property location in conjunction to extending the lease to a more profitable property.

The Government has recently announced changes to the Permitted Development Rights for a wider range of properties. This was changed many years ago to permit the change of use from office to residential. It is hoped the relaxation of the rules will allow alternative and higher value uses to be created. This can help unlock value in any landlord negotiations where the tenant can assist in ‘unlocking’ the value from the freehold property in return for a lease surrender.

Property costs are typically the second highest cost on a Company’s balance sheet and one that presents some great opportunity for cost reduction.



IFT National Conference – Economic Outlook by Tom Simmons

At this years National Conference, Tom Simmons of Deloitte gave his expert insight on the challenges facing the UK economy as a result of the COVID-19 pandemic and what the road to recovery may look like. Here, Tom shares his thoughts from the conference.

The UK economy grew by 1.8% in May from the previous month, a slower recovery than was anticipated after recording an historic 25% contraction between February and April. The easing of the lockdown in June and July should deliver a strong increase in activity, and we are forecasting growth in the third quarter to claw back close to half the loss of GDP sustained in the second quarter.

However, the pace of the recovery to pre-crisis levels of activity is likely to be slow; we do not expect the economy to recover to its pre-pandemic size until the summer of 2022. Concerns about COVID-19 and a highly uncertain economic backdrop mean that many consumers are likely to remain cautious. Production may struggle with supply chain disruption, changes to processes required by social distancing and shifts in demand. Businesses seem likely to remain in defensive mode with a focus on cutting costs. A perception of increased risk is likely to weigh on travel and some leisure activities.

For corporates, the pandemic overshadows all other causes of concern. The 2020 Q2 Deloitte CFO Survey shows CFOs rate it as the greatest risk facing their businesses – and by a wide margin. Against a backdrop of elevated uncertainty and very weak demand, CFOs are firmly focused on protecting their balance sheets by bearing down on costs and building cash. Official data confirm that corporates’ are building cash reserves, and at the fastest pace on record. Views on corporate leverage have changed too. In the last ten years, CFOs have been relaxed about levels of corporate debt. But, following a recent surge in borrowing, the balance of opinion among CFOs is that corporate balance sheets have become overleveraged.

Increased levels of corporate debt and a rise in unemployment will hamper the growth potential of the economy. Much will depend on the behaviour of the virus, with the biggest risk to the outlook being a second wave of infections and further lockdowns. But the vast and unprecedented policy interventions could generate a faster snapback, with pent-up demand surging as restrictions are loosened. The recovery will need more help. Yet, reduced and shaky though it is, the UK economy is starting to recover.



IFT National Conference

Due to the current restrictions on travel and gatherings, we are unable to conduct our National Conference in its traditional format this year. Engagement with and feedback regarding our virtual events has underlined the importance to Members of the IFT providing opportunities to explore changes in the business environment. We are therefore pleased to announce that we will deliver this year’s National Conference virtually and in association with Deloitte.

The National Conference will be held over two consecutive mornings. The first session will be held between 8.00 and 10.30am on Tuesday 14th July. The second session will be held between 8.00 and 10.30am on Wednesday 15th July.

The National Conference will provide key information for turnaround professionals, as well as exploring essential business considerations as we enter a new period. We have an exciting line up of quality speakers and you can find the full agenda here.

Given the extraordinary and exceptional situation, we have taken the decision to base the pricing structure of this year’s conference on a ‘pay what you choose’ structure for Members and Corporate Partners, with 10% of proceeds going towards Mind’s coronavirus relief activities.

Mind is a mental health charity, providing advice and support to anyone experiencing a mental health problem, especially at this crucial time in lockdown. Proceeds can help support the running of its Info Line that provides people with vital information and support in their local area, and its online peer support community that connects others feeling anxious or lonely during lockdown.

For Members and colleagues in corporate partner firms, we suggest a contribution of £30, £60 or £90 for the National Conference to support your Institution and the work of Mind.

The rate for non-members who wish to attend the IFT National Conference is £180 with 10% of proceeds going towards Mind. This provides access to both days.

We hope you can join us virtually during this exceptional time but otherwise we hope to see you in person at one of our national conferences once we can meet again.


*Please do not register using the member sign up below as we are taking bookings via the email address provided above*