Talking heads – The impact of the recession

Leaner and fitter
The economic problems of the last 18-24 months have clearly had a major impact on the property and
construction market. Les Pickford talks to four building surveyors about how they have reacted to the downturn

ash flow forecasts, resource reviews, business
restructures... the recent past has been a busy time
for building surveyors, with firms reviewing how they
operate and searching for new ways to deliver more value to
clients – while also reducing overheads.
But with the inevitable pressure to maintain turnover, there
seems to be some unsavoury practices appearing and the
water cooler talk is of firms drastically undercutting the
competition with low bids. While this might help shore up the
financials in the short term, there are concerns it could have a
longer-term impact on the quality of service to clients and the
building surveying ‘brand’.
But despite the pain, ‘planning for the upturn’ and ‘being
leaner and fitter’ are rallying cries for the profession. Building
surveyors are a flexible bunch and there is a mood of optimism
out there, especially about how to diversify into new markets.

C

Les Pickford, Editor, Building Surveying Journal
lpickford@rics.org

The downturn has affected building
surveying organisations and
departments to varying degrees,
depending on their sector focus and
client base. Knight Frank is fortunate
to have a diverse client base and
sector coverage. The reduction
in transaction volumes in the
commercial market and stagnation
in acquisitions from institutional investors has reduced overall
instructions; however, clients not reliant upon large (or any) exposure
to bank lending have been taking advantage of the market conditions.
We have, therefore, continued to be instructed on pre-acquisition
surveys. Building consultancy departments within commercial property
advisors have broadly remained profitable.
Heavy reliance on either residential, new build or banking sector
instructions has taken its toll on many organisations. I have learned
that some consultants, in desperation, will pitch for work below
cost to maintain turnover. This is clearly not sustainable and will

Related competencies include: M002

Our biggest challenge has been the
collapse of the residential property
market. We started feeling the effects
in September 2007 with the failure of
Northern Rock, but then it really hit us
in September 2008 when Lehman
Brothers filed for bankruptcy
protection. Instead of being able to
rely on a steady flow of transactions,
the market died and we had no idea how long it was going to last (we
don’t expect things to pick up until spring 2010 at the earliest). It’s also
a difficult situation in which to manage your team – how do you motivate
your workforce and keep them informed amid such uncertainty?
On the design side, we were involved in various residential schemes,
some of them large (e.g. 80+ units) but these simply stopped, with other
schemes that were about to go on site not progressing any further.
On our commercial schemes, one developer ran out of money and we
were left with significant unpaid fees. However, I’m hopeful that this will
soon be resolved as the property’s rent-free period is coming to an
end and so it will begin to generate money, which should enable the
developer to meet his obligations.
Other clients have stopped issuing instructions almost completely,
e.g. one regular client with a large branch network has cancelled its
planned maintenance programme and the only work we are doing

for it is to produce commercial EPCs for the properties they are selling.
However, some clients have been largely unaffected by the downturn
because their businesses are almost recession proof; for example,
another of our clients is a funeral directors with a large branch network.
We still, therefore, have a healthy focus on professional services, such
as dilapidations, schedules of condition and party wall awards.
Property management has also been less affected and we continue to
receive instructions, but they are asking for slightly different work, e.g.
repair rather than replacement solutions or implementing short-term,
cash flow-driven solutions.
The past 18 months has caused us a lot of pain – we have reduced
our headcount (our residential team is now a third of its previous size),
moved to smaller offices, renegotiated lease payments to keep monthly
payments to a minimum etc, and have had to cut our cloth according
to the economic climate in order to survive. But our smaller organisation
now means less management and more time for fee earning for me.
It has also shown the importance of client relationships, which
can be strained if there are unpaid bills. Regular communication is
crucial, especially if problems arise – this helps to address cash flow
issues early and also gives us the opportunity to help clients revise their
property strategy and contribute to their survival.
Going forward, one of our biggest challenges is to get out into the
market and win new business. Encouraging people to invest, and not
to wait another 12 months, will help stimulate some kind of recovery.

streamlined

Talking heads – The impact of the recession

“Being competitive is more about value than cost” John Reyers, Knight Frank

adding value
compromise quality of service. It is important to remain proactive and
positive when generating income and developing opportunities. Building
surveyors have diverse and transferable skills and must adapt to
demand, such as providing corporate recovery advice.
We have maintained comparable turnover and profit in the last two
financial years. We have also cut down costs and revised business plans
to take on board anticipated market changes. It is important that we
focus on having the appropriate organisation as well as cost structure.
We have concentrated on structuring the team appropriately to suit
projected demand and the efficient deployment of resources. Flexibility
and adaptability are very important, as the composition of workflow (in
terms of a split between service lines and number/scale of instructions)
will change – even though the overall volume of work can be maintained.
It is important that the team is lean; however we have managed to keep
staff changes to a minimum.
Advising clients on how to improve their position or reduce exposure
to risk is still valued. Our major challenges are identifying opportunities in
changing market conditions and adapting and applying our skills and
knowledge to suit. It is vital to ensure that our offering adds value.

Each organisation must be clear on what it is good at and where it
can add value. This requires self-reflection and honesty. It is essential
to understand where you are in the market and whether you can
differentiate your services. Quality of advice remains paramount, even
in the downturn. Being competitive is more about value than cost.
At the time of writing, France and Germany have said they are now
out of recession and the IPD All Property Capital Value monthly index
showed a drop of only 0.1%, suggesting the investment market may
have stabilised. This is good news for those of us within investment-led
practices. Some indices (IPD, 14 August 09) show that the occupier
market is still very weak, however, affecting services around the acquisition
and fitting out for property occupiers, so we’re not out of the woods yet.
I anticipate a slow recovery, so conditions will remain tough for many,
especially those who are dependent upon new construction orders.

John Reyers is a Partner in Building Consultancy with Knight Frank
john.reyers@knightfrank.com

We also need to keep our focus on business development and restrict
our involvement with industry-level initiatives, which reduces our time for
fee earning.
After three rounds of redundancies, it is also important for us to keep
our existing staff motivated, build their morale and show our appreciation
for them; they have been through an awful lot.
The restructuring of our business will mean less reliance on residential
(at one point up to 80% or our work) and more focus on commercial and
public sector work. Property management is also a big growth area for
us that allows us to cross-sell our refurbishment or maintenance
services, for example.
Overall, my confidence in the future is high. We have a new office and
a streamlined team and are winning new business. But we plan to keep
the business small and not grow it back to its previous size – any
additional skills/resources we need will be bought in through external
consultants, for example by outsourcing our CAD work, to give us
flexibility to absorb the peaks and weather the troughs.
I think it is easy to become complacent in the good times and think
that a boom is going to continue, but the recession has forced us to
become a much more efficient and leaner organisation – and hopefully
more profitable moving forward.

“Clients are asking for
slightly different work,
e.g. repair rather than
replacement solutions or
implementing short-term,
cash flow-driven solutions”
Dan Butt, now professional

Dan Butt is the Managing Partner of now professional

team
dan.butt@now-professional.com

❯❯

October-November 09

Building Surveying Journal

17

Talking heads – The impact of the recession

quality

❯❯
Until recently, we were very successful
in obtaining public sector frameworks
but our strike rate has dropped as
many other firms are now targeting
this area. Hardly a day goes by without
receiving an email to yet another
seminar targeted at teaching SMEs
how to fill in PQQs. Clients are also
now swamped with pre-qualification
submissions – several have recently told us that they have received in
excess of 300 submissions and, as a consequence, they are taking
much longer to evaluate. On existing frameworks, there is also evidence
that clients are looking to go outside the framework to obtain lower
prices, and funding uncertainties seem to be delaying many schemes.
We are still very busy with private sector work but its nature has
changed – while acquisition-related projects have fallen back,
dilapidations, party wall, H&S/compliance and occupation issues are
still fairly buoyant. But instead of larger projects, we’re now receiving
instructions on multiple smaller projects; this is welcome but more
resource intensive and affects your bottom line.
We reviewed our organisation and overheads two years ago as
I wanted to take the business back to basics and we’re now leaner and

“We can diversify by being
entrepreneurial and adopting
a business mindset in terms
of sharing risk and seeking
greater reward”
Alan Pemberton, Tuffin Ferraby Taylor

fitter than before. This included studying successful business models and
taking actions to improve our own structure and products. We looked at
the quality of our client presentations and our documentation, and
invested in ensuring that our submissions stood out. We’ve retained all
of our staff, have recruited and have even given a bonus in recognition
of their commitment and performance over the last year – I can only
guarantee the quality of service by keeping and motivating good people.
Like many firms, we’re working hard to support clients. There has
been pressure for reduced fees, which we’ve resisted; for example, in
the public sector and the large stock condition survey market, successful
tenders have probably reduced by 30-40%, which makes competing
difficult. In one case, the successful bid was about a third of the client’s
initial estimate. I wonder what resources are being used by these firms
and how they cover their overheads, while maintaining the appropriate
quality of service. We should avoid the reckless slashing of fees as,
ultimately, I believe it will affect the level of service provided and devalue
our role as professional advisors.
One problem is that because the market is so uncertain we are
unable to make any capital investments, such as opening a new office.
Sometimes you don’t know what’s coming in next month; debtor days
have increased which has cash flow implications (as does clients going
into receivership), and this all needs managing. We’re constantly

Over the last two years, with property
values decreasing, clients have
become income-focused and are
making sure their properties are up to
a certain standard to help retain and
attract tenants and income streams.
This has led to a slight upturn of our
building consultancy work with
refurbishment, alteration and adaption
of their existing building stock. Our project management and project
monitoring work has dropped off, but there has been a significant
upturn in professional services, such as dilapidations, service charge
consultancy and expert witness.
Consequently, our turnover has fallen slightly and our profit margins
have been squeezed over the last 18-24 months, but not dramatically.
Our sustainable business model has various facets which, together with
a flexible building surveying skills base, means we can move resources
around as necessary.
Even during the so called ‘better times’ we regularly reviewed our cost
base, but over the last 18 months or so this been done with a much
more critical eye; all to get a better understanding of how we can drive
and deliver better value from our spend.

client needs

Talking heads – The impact of the recession

of service
reviewing all of our finances and ensuring that any upward swings are
going to be sustainable.
In recruitment, while agency fees have probably halved and are now
back to a sensible level, I am very worried about graduates and their
ability to find jobs. In a few years time, there will be a shortage of this
important resource, which is vital to the growth and development of the
profession. Moreover, graduates will be priced at a premium and, as a
result, possibly pushed into areas beyond their level of expertise. I have
real concerns that the potential exists to impact on service quality and
the chartered surveyor brand.
Our key priorities for the future are: support our clients in their
objectives, provide a high-quality service to maintain appropriate fee
levels and, with the help of a new business development director,
look for opportunities to diversify in related core areas but with a wider
client list.
Lessons learned? Be prudent in the good times as the bad times
are going to follow. Our success will be driven by our management,
our people and our quality of service.

“I am very worried about
graduates and their ability
to find jobs. In a few
years time, there will
be a shortage of this
important resource”
Peter Miller, William Martin

Peter Miller is a Partner with William Martin
p.miller@william-martin.co.uk

diversify

Reduced demand, pressure on margins, clients delaying payment,
clients or suppliers going bust have all impacted on our business and we
have had to make some very tough decisions on how we operate.
In general terms, there are six elements that relate to how we are taking
this business forward. We are:
1. In control – by looking critically at our business with a strong focus
on the future
2. Confident about what we want to do – with a clear vision and strong
leadership that will filter down through the business
3. Distinctive – providing valued benefits and solutions for clients
4. Strong in our convictions – by having a robust strategy and able to
articulate it
5. Wise – by matching realism with confidence and being realistic about
what we are trying to achieve
6. Ready to grasp opportunities – looking at things in different ways and
questioning whether the time is right to diversify.
Interweaving all of this is knowing what our services are and
ensuring that these are linked with what clients need.
Success will mean getting the most out of our people by
understanding their capabilities and how we can support and
encourage them to develop. This will be essential to our growth

– our business model is not build and sell, it’s more akin to legacy
and succession, and grooming people to move up is a big part of that.
This will also mean looking critically at our work pipeline and income
streams – not just the bread and butter jobs, but where we can diversify
by being entrepreneurial and adopting a business mindset in terms of
sharing risk and seeking greater reward. We will obviously explore
opportunities with so-called hot topics such as sustainability, but I think
as a profession we need to get a better understanding of these topics
and identify client needs so we can then relate our services to the
marketplace.
All of the above is linked to a sustainable business – having the right
people highly motivated with drive and enthusiasm, and flexible
resources matched with dependable capabilities, not just for today
and tomorrow but in our forward plans – to ensure that what we do
now will meet our business strategy for the future.
I’m confident about the future. Building surveying is a diverse
profession blended with a mixture of skills sets and capabilities and
I strongly believe the profession has the potential to develop and deliver
much more.
Alan Pemberton is Managing Partner at Tuffin Ferraby Taylor
apemberton@tftconsultants.com

October-November 09

Building Surveying Journal

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