Why Our Business Model Works

We Are The Asset Manager For The New Economy – Put Simply, We Match Supply And Demand

Traditional Lease Requirements

Building owners usually appoint Citibase as they have an empty building for which they have been unable to find occupiers. Many of these buildings are in a poor state of repair and the building owner faces a significant injection of cash in order to return the space to a marketable quality. An expensive refurbishment is a gamble in weak letting markets. Building owners appoint Citibase as our customers are cost-conscious SMEs who do not require an expensive fit-out.

This means that the building owner can re-launch the empty space with a minimal cash investment.

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Small Business Requirements

Happy Millbank clients in their office

There is an inherent conflict in the relationship between a Landlord and a Tenant. The very words used convey who is in charge.

SME’s do not work with suppliers who provide products that they must pay quarterly, that can’t flex up and down in response to the needs of the business, that they must always pay, even if the product delivered is sub-standard and that will only ever accept a price rise – never a price reduction. Yet all of these product characteristics exist in the office letting market and are enforced by law if the tenant complains.

It is in the DNA of small businesses to adapt to survive. If products and people do not help the small business to survive, then the small business will find products and people that will help them. The revolution in mobile technology helps small businesses to work from anywhere at anytime, making inflexible offices an unnecessary extravagance for small businesses. Citibase has been working with small businesses for 24 years and we understand them very well. That’s why we call them customers not tenants.

Increasing Demand From SME’s

SME’s provide almost 60% of UK private sector employment. In 2016, nearly 17m people were employed by a small business with less than 250 people. Since the 2008 financial crash, SME’s have been battered by a combination of globalisation, recession and inadequate bank lending. Consequently SME’s are hoarding cash and becoming flexible to survive. Every year, thousands of cost-conscious SME’s turn to Citibase to help them enjoy flexibility in a traditionally inflexible sector.

Increasing Demand From SME’s

SME’s provide almost 60% of UK private sector employment. In 2016, nearly 17m people were employed by a small business with less than 250 people. Since the 2008 financial crash, SME’s have been battered by a combination of globalisation, recession and inadequate bank lending. Consequently SME’s are hoarding cash and becoming flexible to survive. Every year, thousands of cost-conscious SME’s turn to Citibase to help them enjoy flexibility in a traditionally inflexible sector.

Nearly 16m People Are Employed By SME’s In The UK

At the start of 2016, there were an estimated 5.5 million businesses in the UK which employed 26.2 million people. SMEs accounted for 99.9% of all private sector businesses in the UK, 60% of private sector employment and 47% of private sector turnover. SME’s employed 15.7 million people and had a combined turnover of £1,500 billion. Almost all of these businesses (99%) were small (0 to 49 employees).

Source: House of Commons Library – Business Statistics 2016

Recession Encourages Cost Cutting & Caution

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‘The corporate sector in the UK responded to the financial crisis by building up large cash reserve buffers to protect their businesses from the downturn. While these moves may have appeared a logical step, the focus on hoarding capital could help explain why a private sector-led recovery has proven so elusive. A recent report by the Ernst & Young ITEM Club suggested that UK Private Non-Financial Corporations (PNFCs) were holding £729bn in currency or on deposit in the second quarter of this year, equivalent to 47% of GDP. To put that in perspective between 1990-2002 average cash reserves equated to between 20-25 per cent of GDP.’

Source: Fundweb: Corporates Sitting on Cash Piles

Small businesses, which traditionally rely on bank debt (overdrafts and term loans) for their external financing needs, were particularly at risk from a collapse in bank lending.

Source: Growth of SME’s 1994 – 2009 – Department for Business Innovation & Skills 2011

Globalisation Increases Competition & Speed

Trade has been the engine of globalisation, with world trade in manufactured goods increasing more than 100 times (from $95bn to $12 trillion) in the 50 years since 1955, much faster than the overall growth of the world economy. Since 1960, increased trade has been made easier by international agreements to lower tariff and non-tariff barriers on the export of manufactured goods, especially to rich countries.

Source – Globalisation Shakes The World

Globalisation Increases Competition & Speed

Trade has been the engine of globalisation, with world trade in manufactured goods increasing more than 100 times (from $95bn to $12 trillion) in the 50 years since 1955, much faster than the overall growth of the world economy. Since 1960, increased trade has been made easier by international agreements to lower tariff and non-tariff barriers on the export of manufactured goods, especially to rich countries.

Source – Globalisation Shakes The World

Technology Increases Workplace Flexibility

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Source: Deloitte’s ‘Upwardly Mobile Report

Talent Retention Requires Flexibility

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The evidence demonstrates that there is a strong and compelling business case for flexible working:

  • Falling absenteeism and higher retention leads to a reduction in costs – 65% of employers said flexible working practices had a positive effect on recruitment and retention thus saving on recruitment, induction and training costs.
  • Increased productivity – 58% of small to medium sized enterprises reported improvement in productivity.
  • Increased ability to recruit from a wider talent pool – 42% of employers reported that flexible working had a positive effect on recruitment in their establishment
  • Greater loyalty amongst staff – 70% of employers noted some or significant improvement in employee relations.’

Source: Extract from Flexible Working: For Families. A report by the Family Friendly Working Hours Taskforce

13% of workers want more flexible hours, that would amount to £8.1bn gain for the economy worth around 5% GDP. 80% of employees say they would be happier with more flexible work options. 77% of UK employees work in organisations that provide some kind of flexible working. More than half of a company’s ability to generate revenue depends on the positive productivity of its employees. Flexible working makes employees 39% more productive. 5.1 productive hours per week per employee, equating to c. £4200 per annum per employee. Flexible working showed 2/3 of employees have greater job satisfactions and more than 1/2 reported a better work/life balance.

Source:Key Data for Flexible Working From ExpertMarket.co.uk

‘80% of Small Businesses Say That They Are More Flexible Than They Used To Be’

Jones Lang LaSalle

Internet Search Engines Create New Route To Market

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The internet has created a new marketplace for owners and occupiers, which is reducing the influence of commercial agents. Small businesses which require office accommodation, are no longer restricted to a small number of similar agents – offering very similar product – as their source for information about product options, but can search their way to a very large range of options, including Citibase.

In 2016, Citibase made under 5% new sales to customers who were introduced by a traditional, commercial agent. The balance of new sales came via the internet, signage, or by word of mouth. Although the market is expected to grow by 7% a year until 2023, little of this growth is expected to come from traditional, commercial agents, who are not set up to exploit it.

Home Working

There are now some 3.8m homeworkers in the UK – and, out of a total workforce in excess of 29.2m people, that’s more than one in every eight of us (it’s just over 13%). In contrast, in 2001, we were 3.1m out of a total of 27.8m – some 11.1%. So, a growth of two percentage points in ten years: not a meteoric growth, but a quite substantial one all the same.

Source: ONS figures on homeworking trends

Home Working

There are now some 3.8m homeworkers in the UK – and, out of a total workforce in excess of 29.2m people, that’s more than one in every eight of us (it’s just over 13%). In contrast, in 2001, we were 3.1m out of a total of 27.8m – some 11.1%. So, a growth of two percentage points in ten years: not a meteoric growth, but a quite substantial one all the same.

Source: ONS figures on homeworking trends

Increasing Supply of Second Hand Offices

All occupiers are facing the need to reduce their total office occupancy costs. This requirement is creating a structural shift in the traditional office letting market. In 2015, research conducted by Northumbria University showed that there was over 200,000,000 sq ft of vacant office space in the UK. The owners of these empty offices cannot find tenants as their product does not match the needs of the market. Citibase believes that the traditional letting market is not able to reform its business model to meet the needs of small businesses and therefore faces structural decline.

The Initial Term Of New Office Leases Is In Decline

The decline in the average term of lease is a reflection of tenants trying to align their committed expenditure to uncertain future profitability. Even when the economy recovers fully, this trend is likely to continue, due to the speed of change created by technology and globalisation.

The average term of the initial period for which a customer signs with a Citibase Business Centre is 11 months. The average term of actual occupation of customers who use a Citibase Business Centre is currently 18.6 Months.

Rent Free Incentives Are Increasing

When demand for a product exceeds the supply of that product, prices rise and when supply exceeds demand for the product, prices fall. In many markets, headline prices are often maintained in order to maintain the strategic position of the product, but hidden discounts are offered on a daily basis in order to win business.

In the office market, rent free is commonly used as a hidden discount. Hidden discounting (rent free periods) in traditional office leases has increased from under 6 months in 2002, to nearly 8 months in 2016. This level of discounting reflects an office letting market with a significant imbalance in supply and demand.

Rent Free Incentives Are Increasing

When demand for a product exceeds the supply of that product, prices rise and when supply exceeds demand for the product, prices fall. In many markets, headline prices are often maintained in order to maintain the strategic position of the product, but hidden discounts are offered on a daily basis in order to win business.

In the office market, rent free is commonly used as a hidden discount. Hidden discounting (rent free periods) in traditional office leases has increased from under 6 months in 2002, to nearly 8 months in 2016. This level of discounting reflects an office letting market with a significant imbalance in supply and demand.

Forecast Reduction In Office Space

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Source: Oxford Economics – Page 7 – Lambert Smith Hampton Addressing Obsolescence Office Market Review 2013

‘There will potentially be a substantial reduction in the demand for office space in the UK’
Lambert Smith Hampton