Cash Converters Needed

It has been recently estimated that US and Eurozone companies are sitting on $2 trillion of cash on their balance sheets. Indeed Apple alone have in the region of $100 billion of surplus.

Many property professionals are psychologically relying on this potential manna from heaven as the future demand driver of space needs in our markets.

Instead we sit in the UK with its “muted” occupier demand and realise that much of the new space taken this year will be from occupiers encouraged into acting due only to events on their leases, ie they either have a opportunity to exit their lease or they are coming to the end of their lease altogether.

One might ask why more companies aren’t being proactive about putting some of their cash into bricks and mortar – taking the plunge to consolidate, upgrade specification, and work in conjunction with developers to ensure a building suits their business needs for years to come. Yet decisions are put on hold for a number of key reasons:

  1. Lack of confidence in the economy and return on investment.
  2. The wish to implement internal financial controls such as share-buy back plans, future-proofing pension liabilities or channel coffers into investor dividends.
  3. The wish to hold back funds in an environment of tight credit.

A word of warning though, the future ability to command space in vital locations cannot be guaranteed – the vacancy rate for grade A office space in London’s West End, for example, has now dropped to 2.2% (10 year average is 3.0%). In a “normal” market this figure would have triggered wide-spread development long ago, in today’s credit squeezed environment though many developers are unable to push the button.

As such securing the right space at the right price is an operational risk perhaps yet to be considered by many companies, and one that is not going away in the medium term.