Future Prospects of Land Securities Property Group - Essay Example

?Land Securities property group Table of Contents Background 3 Company Profile 4 Environmental Analysis 5 PEST ANALYSIS 5 SWOT ANALYSIS 7 Porter’s Five Force Model 8 Value Chain Analysis 10 Competitive Advantage 13 Future of the Industry 14 Reference 16 Background The UK commercial property market is valued more than ? 529 billion, in comparison to the residential property market which is about ? 3,805 billion. If we look back to scale the performance of the commercial property market, we will see it has generated considerable revenue in and before 2007. Most of the pension providers in UK invested at least 5-10 percent of their money in commercial properties. Investors often went for choosing commercial properties in place of bonds as investments because it offered very good return. Soon after 2007, this lucrative area of investment really became a nightmare zone for investors. The real estate industry faced setbacks due to globalisation, change in the economic scenario, recession, and sub-prime mortgage crisis. The property prices fell up to 50 percent. The commercial property industry revived by 2009 but the revival was not constant. There no stability in this industry anymore. The profits and losses in the real estate industry have become unpredictable. Moreover, the risk involved in investing in commercial property also pulled back the investors from such investments (Pickup & Derbyshire, 2010, p. 259-263). The economic downturn affected all the countries round the world. The intensity may be different but the dropping sales figures and decreasing revenue has been the scenario for most of the countries. The shops remained empty and this further affected the property owners dealing in commercial property business. Many banks and companies declared themselves insolvent and filed for bankruptcy. In the backdrop of such economic scenario, we will analyse the position of the Commercial real-estate industry. Land Securities Group is one of the major players in the commercial property Industry in United Kingdom. Though the balance sheet of the company is showing positive results, but the market is not. The company is big and the capital base of the company is strong. The retail industry is facing huge losses And Retail giants such as Game, HMV or other super markets are have empty shops. In the study the analysis of the company Land Securities Group, is done keeping in mind the objectives behind the analysis: To study the competitive advantages and Strategies of Land Securities To analyse the complete external and internal environmental condition of the company. To see the status of its competitors To make projections regarding the future prospects of the commercial property Industry. Company Profile Land Securities Group is one of the largest commercial property companies in United Kingdom. It came into existence in the year 1944. Their main area of business is to develop shopping centres, retail shops and warehouses, offices and other commercial buildings. They are into maintenance, development, repairing of the property in both public and private sectors. Land Securities group is also into development of the urban community. For this purpose it has planned a multi-billion development program. Land Securities has a total of ? 4.9 billion of retail portfolio value. It owns more than 24 shopping centres and 19 retail parks. About ? 20.6 million sq. ft. of retail accommodation is developed by land securities group. The company is listed in London stock exchange. It has an operating income of ? 1244.1 million in 2011. Land Securities group also provides employment to more than 700 people. The company has received several awards. It has received the Landlord of the year award, BCSC Gold Awards for retail Town Scheme and also National Property Company of the year award in 2011 (Landsecurities, 2012). Environmental Analysis PEST ANALYSIS PEST Analysis is mainly done to study the external environment for the company. Land Securities group is a company mainly situated in UK, which is going through its longest and deepest recession, compared to its previous records in 1950s. So in this case the evaluation of the external factors is vital to decide the position of the company (Gregory, 2001, p. 50). Political Factors Due to the credit crunch prevailing in the economy, the political conditions of the country is also unstable. The pressure of imbalances in the economy has forced the government to take many drastic financial steps, such as altering the tax rate on property or increasing the interest rate of loans to discourage loans for commercial as well as residential property. The regulations are enforced by the government of the country. Moreover, political pressure from other countries has also compelled the government to take necessary steps because other countries are also taking measures for recession and all the countries are economically interrelated due to global trade and commerce (Gregory, 2001, p. 50). Economic Factors The US sub-prime mortgage crisis affected the world economy massively since one of the main currencies of exchange in the global market is US Dollar. Similarly, UK was also going through one of its deepest credit crunch. The retailers in the shopping centres and other departmental store and shopping malls were not getting adequate footfall in their shops. The shops were lying empty most of the days. This was due to rising level of unemployment in the country. So due to this fact the retailers were not buying new property and also selling of the existing ones that they possessed. Moreover, the prices of the commercial properties have also have gone down by 50 percent as the demand for property was negligible because people could not afford them. A major setback for the company was the economic factors that not only prevailed within the country but in the whole world. (Gregory, 2001, p. 50) Social Factors The companies in UK were highly involved in cutting the cost during the economic crisis. Most of the companies opted for down-sizing about 40 to 50 percent of the employees lost their jobs. Eventually this led to decrease of purchasing power of the people in the country. The standard of living and their lifestyle started degrading. Retails would not be interested in buying more commercial property because of decrease in sales (Gregory, 2001, p. 50). Technological Factors Big companies spend good amount of money on innovative technology. Especially commercial property developers are into developing property on large scale at a given time period. So plant and machineries that help to reduce physical labour and cost is always preferred by this sector. But investment in developing new technology or in research and development during a situation like now is nearly impossible even for financially stable companies in UK. SWOT ANALYSIS Strength Weakness - It is one of the market leaders in the commercial property markets in UK. - The company is not only into developing commercial buildings but also into maintenance, repairs and leasing services too. So it has a diversified business, which is spread all across the country. - The considerable increase in its net income, shows that the company is performing well even in an unfavourable economic condition - The company focuses mainly on customer satisfaction. - The cities best commercial infrastructures are built by this company. - The fall in the share prices due to the overall setback the industry is facing. - Earning has reduced compared to previous years. - Decreasing rate of stock prices. - Decision to split the London and retail portfolios into two separate companies due to the financial crisis. Opportunity Threat The investment of Land Securities in various diversified businesses other than just commercial properties, such as multi-billion development programs. Due to the revival of the economic conditions around the world, retailers who survived during the credit crunch and are making profit are now looking forward for acquiring more commercial spaces and retail units because the prices are comparatively low. The main threat that the company would face from the credit crunch. Due to slow economic condition retails are not keen on buying retail units. Moreover, the existing shops are also lying deserted. So people holding commercial property are becoming either insolvent or selling off their property. Other Environment issues will also play major roles in the future in the real estate Industry. Source: (Kotler et. al., 2009, p. 50-52). Porter’s Five Force Model The Land Securities group deals in development of commercial property and retail units. In this industry customers follow certain principles when they make a purchase decision. The foremost aspect of making decisions is the location, quality, size and price of the property. Generally customers do not switch choices frequently in this market. They are mostly loyal to a company and its offerings. In this study the market analysis of Land Securities is done using Porter’s Five force Model as stated in Figure 1. Figure 1 Source: (Hill & Jones, 2009, p. 43). The Degree of Rivalry Due to the economic slowdown, the demand for property decreased and so their prices also fell considerably. The intensity of rivalry among the firms should have increased due to the decrease of the overall revenue of the real estate industry. All the existing companies in the industry would get into cut throat competition to snatch away maximum revenue from the other. So the degree of rivalry would be high among the companies. The Threat of Entry Land Securities group faces low level of threat from entry of new rivals as they are the market leaders. Moreover, in economic situation such as now, none of the investors would like to enter into the real estate business. The Threat of Substitutes Since the competition among the companies is high therefore the threat from substitutes is also high. The close competitors of Land Securities group such as The British Land Company, Burford Holdings Limited or Canary Wharf Group offer similar offerings in commercial property sector. Buyer Power Due to the credit crunch in the economy, people in London are losing jobs at an alarming rate. The shops on High Street were empty as the buyers had very low buying power. Supplier Power The suppliers faced difficulty in supplying raw materials because there was no profit. They hardly earned any revenue because the demand had fallen at a considerable rate. So the supplier’s power was low. With the revival of the economy the situation is becoming stable. Value Chain Analysis The value chain of the company is segregated into primary and supporting activities as we can see in Figure 2. Figure 2 Source: (Hitt, Ireland & Hoskisson, 2010, p. 86). Primary Activity The primary activities of the company are to take care of the development, sales and allotment of property through proper channels to the buyers. The value chain analysis is important to lay down the business level strategies. The core activities of Land securities are to develop commercial developments such as shopping mall, business centres, offices, retail units, etc. Inbound and Outbound Logistics Land Securities group work in close union with its suppliers, customers and investors. Suppliers are important since they supply raw material at the right place and time. The success of Land Securities can be attributed to the fact that they maintain good relation with their suppliers. There are contractors and sub-contractors working under the company for property development. Operations The operational activities in Land Securities include the allotment of property, the paperwork related to such functions and ensure proper delivery of furnished properties at the right time. The company has acquired quite a name for itself due to their flawless work and delivery of property on time. Marketing and Sales The company had a strong balance sheet even during the time of recession. This reflects in their sales which were good compared to the other property developers in London. Moreover, it also shows that the marketing plans developed by the company were appropriate for the present market situation. Services Land Securities Group also provides services to the customers by repairing and maintenance of property. Supporting Activity Support activities involves support assistance require for the primary activities. Procurement The Company has a good capital base and has future plans of procuring several big contracts and projects of high budgets in Central London. Technology development The Technology used by the company is sophisticated and advanced, to ensure that the property developed would be safe and of high quality. Advanced equipments help to not only speed up the work process but also save resources for the company. Human Resource Management The communication within the department and also with the top management is regular in Land Securities Group. Employees are rewarded for their good performances. The management at Land Securities Group develop several programmes to improve the performance level of the employees. Moreover, Land Securities is an equal opportunity employer. Infrastructure The company possess a considerably well-equipped office for its workforce consisting of 700 employees. It is situated in the centre of the city and well connected. Competitive Advantage The sub-prime mortgage crisis has turned the world economy upside down. Due to this fact many developer in UK could not raise enough capital to advance their developments. But Land Securities group had faced no difficulty in raising capital for its projects and developments. While other developers faced several issues raised by the London locals in central London, Land Securities enjoyed increase in rental value throughout the year. The company utilizes the demand in central London for offices and retail units to increase its revenue. Due to fall in price of real estates, buyers round the globe are taking interest in investing in the commercial property market. This is a positive sign for the revival of the industry. The annual report of the company states that there is demand for new offices and rents are also rising. The company is looking forward to restart the developments in London. The company has a mix of really high quality of assets which will generate strong revenues. Apart from this the company has access to large funds and great goodwill in the market. Apart from all these they are also in repair, maintenance of buildings. It also provides buildings on rent and for lease to several offices, retailers and organisation. Mostly, the developers involved in commercial property dealing are not involved in so many activities. So this aspect of the company will give it an edge from the others. The company continues to generate revenue even during the crisis situation due to this reason. Future of the Industry With the advent of the new UK government, the future of the real estate industry is covered in the clouds of uncertainty. It has become really difficult to acquire real estate loans because the interest rates are high. Loans are not easily offered by banks due to recession currently prevailing in the countries round the world. The main reason behind recession was the careless lending of loans for real-estate. So we can say that the commercial real-estate was the major cause for dragging the economy into recession. Lenders took around 48.5 billion, which is probably 7.9 % of debt outstanding in the commercial real estate segment. With the big mall owners and shopping centres owners filing for bankruptcy, it can be said that the future of commercial retail property market is still in doubt. It is really hard to predict the real estate market. Even highly experienced analysts are unable to comment on the future aspects of commercial property. The major players in this sector can only hope for making considerable progress because they have the power of capital and goodwill. Big developers have diversified business, which will help them to survive in this economic condition. The only point companies are keeping in their mind is to reduce the cost to at least earn some revenue so as to cover their cost. Some of the positivity for the future prospects is stated: The low rate of interest will make the property yield attractive to the customers. The companies can renegotiate the leases with the tenants for rise in the price. So it would act as a good hedging instrument in inflation. The developers offering buildings on lease would receive regular payments from tenants which will be a good source for regular income. The falling rates of real estate will attract investors from other countries, which will in turn help to revive the market. Reference Gregory, A. (2001). Planning and Managing Public Relations Champaigns. London: Kogan Page Publishers. Hill, C. & Jones, G. (2009). Strategic Management Theory: An Integrated Approach. Connecticut: Cengage Learning. Hitt, M. A., Ireland, R. D. & Hoskisson, R. E. (2010). Strategic Management: Competitiveness and Globalisation, Concepts. Connecticut: Cengage Learning. Kotler, P. et. al. (2009). Marketing Management. London: Dorling Kindersley Pvt. Ltd. Landsecurities. (2012). About Us. [Online]. Available at: http://www.landsecurities.com/. [Accessed on May 11, 2012]. Pickup, B. & Derbyshire, W. (2010). Home Truths: A Practical Guide to Buying, Selling and Investing in Property. London: Spiramus Press Ltd. Read More