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Land Securities is the biggest property company in the UK, owning £11.5 billion worth of property. It buys, develops and manages property. Its main income comes from leasing buildings to clients. Its main concern is to maximize the returns to its investors - its shareholders. Land Securities needs high occupation levels in its properties to maximize returns. Its planning is influenced by the state of the economy.
The Business Cycle
Since the mid-1990s the UK economy has experienced growth. However, a number of analysts are now predicting that this will end, and there will be a downturn or recession. In a recession, businesses lay off staff and order books are slow to fill. People therefore have less money to spend, so a vicious cycle is established. A recession may be signalled by inflation or rising prices.
The Property cycle
Commercial property does not react to a recession in the same way. In a recession there may be more demand for rental property. At the same time, property may be bought at lower prices and then sold when the economy has recovered. If Land Securities manages this process well, it creates long term assets, financial stability and good returns for its investors. As property is a long term investment, changes in the business cycle are less likely to affect it. Land Securities also owns shopping centers. Projects such as these can only be developed over long periods so the business cycle is less important.
Planning
Because many of their projects are long term, Land Securities is always looking forward. It has a rolling five year plan that is reviewed and updated every six months. The directors use a scoring system to assess all aspects of the business's performance. In addition, directors look closely at economic forecasts and other factors that might affect the economy. One possible problem is in the retail sector, where many businesses are warning of lower profits. The company has looked into this and found that this should not affect demand for property, as businesses are taking on more floor space to grow sales.
Managing risk
There is always a risk in any business proposition. Land Securities has developed ways to manage risk in the property market. It uses a set process that identifies and assesses risks and helps to develop solutions. It is also important that the company remains aware of the risks outside its control, such as changes in government policy, taxation or legislation. Through its membership of the British Property Federation, it can talk to government and plan to manage the effect of future issues.
References:
www.thetimes100.co.uk/studies/view-summary--land-securities-group--60-229.php
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