For millennia, our attitudes to property remained almost unchanged. The unspoken consensus was that property equalled permanence and that any enterprise worth its salt must boast some solid buildings. Not only were these buildings impressive in themselves; they were tangible financial assets that represented insurance against bad times.
All that has changed. We’re beginning to understand that property, however impressive or attractive, can also be a millstone. Think of the world’s great companies – how many do you associate with landmark buildings? How many actually own the buildings they occupy?
The P & O Building in London, now demolished – this was the site of the travel company's headquarters for 150 years
The world’s biggest company, Walmart, needs warehouses for its goods and buildings in which to display and sell them. But the company headquarters consist of just 15 buildings surrounding its original office warehouse. It employs 11,000 people there – less than one per cent of its US workforce and an even tinier fraction of its 2.1 million associates worldwide.
Walmart is a retailer. Why would it want to tie up its capital in property?
Tesco, the UK’s biggest supermarket and growing rival to Walmart, is moving in the same direction. Since 2006, the company divested £5bn of property assets, selling 30-year commercial mortgage-backed securities backed by rents on a portfolio of 41 stores along the way.
You might expect the hotels business to be different. But the Intercontinental Hotels Group, best known for its Holiday Inn brand, owns just 17 of its hotels – equivalent to one per cent of its worldwide holdings. By far the greater part of its revenues comes from nearly 4,000 Holiday Inn franchises. No capital tied up in those properties; the company’s earnings come entirely from a percentage of the room revenue.
Increasingly, businesses of all sizes are finding it necessary not only to identify what they do best but also to strip out “non-core” activities. The 2010 management buy-out of Merrill Lynch’s former property investment business is a good example. Following in the footsteps of Citigroup, Merrill Lynch’s former real-estate managers set up Peakside Capital, a private equity firm, acquiring the bank’s two global property funds worth more than £400m in the process.
So far, I’ve talked about global giants. But the same applies to smaller enterprises like Yell, the UK business search engine, which is abandoning the 18 satellite sales offices used by its 700-strong sales team in favour of Regus’s network of 140 workspaces across the UK.
The move is saving Yell £1.5m a year and Simon Taylor, its Head of Property, now considers his old sales offices to have been “an expensive luxury”. Now his company’s sales teams can go to Regus for all the office resources and facilities they need, whenever they need them. Spending less time commuting is making them more productive, while their new way of working strikes Simon as “more cost-effective, lower-risk, flexible and sustainable”.
Business success has always depended on identifying something that you do better than anyone else. If that something is not property management, then you should sell up, get out and leave it to the experts.
(Photo: 122 Leadenhall Street, by Jon Hanson)