Hidden among frantic preparations for the Millennium celebrations a couple of years ago was a sobering warning: much of Britain would greet the new century by ripping up its roots. A fifth of the country’s top companies planned to move, including almost 40 major firms in central London alone. If a single new chip factory or car plant closure can dominate headlines for months, the prospect of hundreds of buildings and thousands of staff on the move might be expected to flood the front pages But it has gone almost unnoticed.
One reason is that relocation is now almost an integral part of life. The business world has woken up to the fact that you can’t sit comfortably in the same factory or office block forever when investors are making increasing demands on profitability. Another is the enormous changes in work practices brought by new technology, which are making even relatively new buildings redundant almost overnight.
But a major part of this anonymity is sheer lack of information. Have all those moves taken place? No-one can tell. The warning came from a government quango that no longer exists based on work by a service provider engulfed by a takeover. The government gave up tracking moves almost a decade ago.
If the policymakers don’t know what is happening, how can individual businesses be sure they are doing the right thing? Only by an awareness of the pressures tugging at almost everyone’s roots and keeping an eye on how others have managed their moves.
Twenty years ago, it all seemed so simple. Rising rents in areas like the south east meant you looked for somewhere cheaper and companies packed their bags for provincial centres like Bristol, Sheffield or Torquay. Ten years ago business parks in rolling fields were the favourite alternative to traffic-choked town centres. Today that has all changed.
‘Many companies realised they had made a mistake by choosing what appeared a cheap option,’ says Alan White, who masterminded the relocation of almost 10,000 BT workers from central London and now advises other companies as a consultant with DTZ Pieda.
Some found themselves isolated by poor communications with customers while others alienated their own staff. If there is one lesson learned from all those years it is that people are more important than bricks and mortar and most modern moves hinge on retaining staff. There are exceptions, such as the chains of new call centres populating the Provinces but even they are located where they can find the right workers rather than just to access low rents and development grants.
Isolation has become an even more important factor as new planning policies clamp down on parking and rail services become more unreliable. Greenfields are no longer as attractive if you can’t get your staff to them.
So what does a managing director do, faced on the one hand by increasing pressure to move and on the other to preserve his staff base? One solution is to move only a short distance - another reason why relocation has become so invisible.
‘It’s called the one-stop-shuffle,’ says Chris Hiatt, a European director for consultant Jones Lang LaSalle. A business may move a few miles – maybe a few streets - rather than across the country. BT’s huge exodus was hardly noticed because it reached only as far as the M25 and was spread among several buildings. The shift by big financial names a few stops down the Tube from the City of London would probably be unnoticed if not for the sheer scale of their new homes in Canary Wharf.
Similar relocations are quietly happening across the country. Software company Veritas is shifting out of central Reading to Green Park. Royal Bank of Scotland is consolidating into Brindleyplace, a former industrial wasteland in the centre of Birmingham. Back in London, Sainsbury and Glaxo SmithKline are making short moves and even some banks have rejected Canary Wharf. Lloyds TSB, for instance, is moving within the City.
Not everyone is learning the short shuffle, however. Some firms want to lose staff, even though they can’t admit it, says Jeremy Charles of property consultant Strutt & Parker. One company moved 40 miles out of London to find a more stable staff profile. ‘It was tired of the rapid turnover in the capital,’ he says.
So there is no ‘right’ strategy and it must be tempting to dismiss the whole trend as problem for big names, anyway. But there are forces which will increasingly impact on smaller businesses. ‘Any company with more than 50 staff will have to come to terms with relocation pressures,’ says White.
For some, it is a simple matter of efficiency. Lehman Brothers, the giant international bank, was desperate to gather all its 5000 central London staff under one roof. ‘We want the synergy that flows when people can bump into each other,’ executive director Frank Bartolotta told a study by the British Council for Offices of demand for tall buildings
New neighbour Keith Toms, head of business services and facilities management at lawyers Clifford Chance, cited cost savings from duplication across multiple buildings as an important factor in its move to the Docklands complex.
Few managers face problems on such an enormous scale but everyone is under pressure to trim costs in an era of increasing competition. ‘Property is a prime target because it is less political than staff.’ ,’ says Richard Norton, head of tenant representation at international consultant Jones Lang LaSalle.
But there are also wider forces at work.. Government PFI projects woke up the private sector to outsourcing property as a way of to both cutting costs and concentrating on core activities. BT sold the whole of its estate last year, while Abbey National and the BBC have handed over their property to specialist managers.
This trend is forcing everyone to look harder at accommodation. But bricks and mortar have traditionally been rarely discussed at board level. ‘Many companies don’t even know what property they have,’ says Guy Douetil, corporate services partner with Healey & Baker, which advises Ford on its 100m sq ft European estate.
When they find out, it can lead to all sorts of relocations. But decisions on what to sell and where to move must fit the business plan. ‘Every company should have a property strategy,’ says White. Otherwise, it can be overtaken by events, such as the sudden need to move because a lease expires, a new contract demands extra space, or a profit crash demands quick cost cuts.
One of the biggest mistakes companies make is that the MD hears too late about the need for relocation and has to twist the business around a move or property experts are brought in too late to plan an efficient move, says Douetil.
White proved the value of strategic planning when BT plunged into crisis. He had already cut annual costs by 40% by relocating away from old and expensive space and selling the surplus. He could do this only by creating a centralised property management linked to clear company strategy. So when the finance director pleaded for help White had the information – and confidence – to propose a massive sale. This raised £2bn to reduce debt.
There is no such thing as an ‘ideal’ location, as different firms have different needs. Even individual departments can vary. Those dealing directly with customers or suppliers will tend to staff closer to town centres while others working mainly by phone and computer are more easily dispersed.
But that does not mean cheap rents and high grants are the sole factors. Support operations often demand technical and language skills, so it can be better to look at university towns like Dublin, Edinburgh and Cardiff, says Norton.
In fact, there is a swing away from the idea that skilled staff would be attracted only to out-of-town business parks set in green fields. That works for older workers, particularly those with families, but twentysomethings are re-colonising town centres, buying trendy lofts and walking to work. Brindleyplace in Birmingham and Chiswick Park in west London show how developers are responding by creating efficient new offices close to town centres.
Software and computer companies are paying the price of following the herd into a chain of greenfield parks between London and Swindon, dubbed the Silicon Valley of Europe. They have struggled to attract enough staff and just before the technology bubble burst some were looking to relocate into less overheated areas. Ironically, the herd suffered again when the market crashed because everyone contracted at once, leaving surplus property no-one wanted.
This provides another pointer for managers. Before moving into new space they should always ask property advisers how they can get out again. ‘It’s rather like a pre-nuptial agreement,’ says White.
British landlords are notorious for demanding leases as long as 25 years and upward-only five-year rent reviews. Property professionals have tended to accept this as a fact of life but he says managers should demand shorter leases and break clauses. They can only do this, of course, through long-term strategic planning. If an agent or landlord realises you need new space urgently, they can sit back and wait.
Not every move involves British landlords, of course. Most business plans will involve some international element nowadays, says Mark Hughes of Ernst & Young. ‘If you are asking the question whether you should be in London, you should also ask whether you should be in the UK,’ he says.
The flow abroad is still a trickle but is steadily growing – and brings new property challenges. Julian King has encountered most of them acquiring more than 20 buildings in his role as managing director of HQ Business Centres in Europe. He has two simple pieces of advice for the newcomer:
‘Always look for a recognized business district. It will be easier to recruit staff and if things go wrong, it will be easier to dispose of the property. The most common mistake I see is firms choosing poor locations.’
The second is to ‘get good advice’. Local knowledge is essential to steer through the maze of rules and regulations for each country. Most of the big UK consultants have international networks but King says there is no substitute for getting out to meet people on the ground.
This is particularly important in countries which have no property market. Frank Eul of consultant DTZ Tie Leung says China has become a magnet for UK companies all land is owned by the government, so any deal must be done via joint venture with local companies. Another key factor is attracting staff when there are so few Western facilities. He recommended one firm to build its own housing, English school and hospital..
One way of avoiding property problems is using a firm like King’s. Business centres are an increasingly popular way of dipping a toe in the water because they offer short-term tenure in quality locations. Many of the top names now use firms like HQ or Regus as a first step, not just into new countries but for moves within the UK.
Successful moves demand a mix of dictatorship and consultation, according to Ian Coull of J Sainsbury, which has just amalgamated nine offices into a single central London HQ. Chairman Peter Davis, who had previous experience moving Reed and the Prudential, insisted on weekly meetings with property and main board director Coull and the human resources director to make all decisions down to staff dress directives. ‘I wasn’t keen at the start but it was a massive lesson because it meant decisions were made at the top and could not be disputed,’ says Coull.
Circumstances had already conspired to enforce relocation. This was property driven, as the old buildings were inefficient and scattered around the South Bank. Coull looked right across the south-east but the sheer size required – around 400,000 sq ft – cut the number of potential sites to a few towns.
Savings on rents there were minimal, and once consultations revealed Sainsbury would also lose unacceptable numbers of middle-ranking staff, the search was narrowed to central London. Again staff views were tested and ran against Chiswick Park in the west and Canary Wharf in the east because each would inconvenience people travelling from the other direction. Luckily, a development was going spare in Holborn after Accenture pulled out, and Sainsbury now has a new home.
One common pitfall the firm avoided was making these decisions independent of the business plan, says Coull. This was partly because he is a rarity in the UK – a property expert on the board. Moves are often flawed because the property team chooses a new home based on current needs rather than being given all the facts about future needs, such as expansion or potential cuts. It is also called in so late that pressure to find space quickly can lead to the wrong choices, he says.Glaxo SmithKline
When Glaxo Wellcome married SmithKline Beecham signwriters everywhere must have cheered. Coping with one of the longest names in the business world would be manna from heaven. Not for property managers, though. How do you merge two equal partners with world-leading status?
Relocation often takes place for such reasons. Rather than shifting one company into another’s home, leaving a feeling of intrusion, put both into a new one. It happened that SmithKline was already committed to move from its obsolete west London HQ. ‘Putting both together in the new building gives the company an important focus,’ says Richard Evans, strategy and planning consultant in the global real estate division.
The former Glaxo site at Greenford will be kept as the research and development centre while that firm’s cluster of buildings at Stockley Park, near Heathrow, will be the UK headquarters. By coincidence, SmithKline had intended moving to another part of the park but decided it would be quicker to buy a site near its old centre at Greenford to develop what now becomes the combined company world HQ.
What were the lessons from such a complex exercise? That depends on where you stand. Alan Chandler, who helped keep staff informed, says: ‘It’s vital to keep people in touch or a vacuum develops and sucks in all kinds of problems.’
Evans has a wider property remit, handling the constant relocations taking place in close to 60m sq ft around the world. He points out that developing a highly visible HQ is a special case. Everywhere else property should be treated as a commodity which fits the business plan.3M
Relocation is often seen as divisive for staff and disruptive for the business. But it can be the exact opposite, says Pip Frankish of 3M (UK). The company will move into a new headquarters in Bracknell next year more unified and focussed than ever.
The secret was using specially designed consultation techniques to involve 800 staff at every stage in creation of the new home. This will provide a strong bond as well as improving efficiency. But it is only possible if staff are brought in early. ‘We were able to tell employees they were central to the whole process,’ she says.
The move across Bracknell was property-led because the existing HQ lease was running out but staff issues quickly came to dominate. The company initially looked across the South but stayed local to preserve the skilled workforce. It found a site and saved burdening the balance sheet by doing a sale and leaseback with an investor.
The move also produced a major bonus because 3M had been looking for a culture change and creating a new building meant it could implement this by switching from older office layouts to more flexible open-plan.