Review of 2010 – USD version - Skanska

The City Green Court office
building in Prague,
Kapitalexponering i pågående
Czech
projekt
Republic, is being
developed with an eye to the
Mkr
environment.
4 000
City Green Court, which will
have 3 50016,000 sq. m (172,200 sq. ft.)
of 3 000 leasable space, is expected
to be completed during the first
2 500
quarter of 2012. The property is
located 2 000 in the Pankrác central
business 1 500 district.
Like other office projects
1 000
developed by Skanska, City
Green 500 Court is designed to meet
3. Uthyrning
2. Design och projektering
1. Planläggning och bygglov
2000 2002 2004 2006
18–36
2008
månader
2010
Tid
Value creation in Commercial Property Development
Value
Illustration
5. Property management
4. Construction
3. Leasing
2.Design and pre-construction
1. Planning and permitting
6. Divestment
18–36 months Time
The development of commercial projects is a
continuous process with several clearly defined
phases – planning and permitting, design and
pre-construction engineering, leasing, construction,
property management and divestment. The average
development cycle is 18–36 months.
Local presence
A local presence in the various markets is necessary in
order to identify both tenants and investors, the latter as
future owners of projects. Operations take place in Skanska
Commercial Development Nordic, Skanska Commercial
Development Europe and Skanska Commercial Development
USA. About 78 percent of capital employed is attributable
to project development in the Nordic countries,
18 percent in Central Europe and 4 percent in the U.S.
The allocation between product segments varies.
Completed properties include 75 percent office, 3 percent
retail, 6 percent parking and 16 percent other facilities.
Focus on two customer categories − tenants and
investors
Commercial property operations target two different
customer categories with the same product. The
primary customer is the tenant, who has many expectations
and requirements regarding the premises. The
second customer is the investor, who buys the property
in order to own and manage it long-term, with a certain
targeted return. This dual customer relationship
means that the product, as well as the services that go
with it, must be adapted to be attractive to both customer
categories. In some cases, the tenant is also the
buyer of the property.
Value creation in all phases
the 0standards of the LEED
international 2000 2002environmental
2004 2006 2008 2010 Skanska starts new projects early in the business cycle,
certification system.
at the pace the market situation allows and when the
risk-return ratio is deemed to fulfill the requirements
established for these operations. Commercial project
Capital at risk in ongoing development is a continuous process; the developer has
projects
Värdeskapande i Kommersiell fastighetsutveckling
full responsibility in all phases.
USD
Värde
M
Land and building rights are the basis for these
600
operations. 6. Försäljning A supply of land suitable for development is
essential for a continued flow of projects. Due to lengthy
5. Förvaltning
4. Byggande
550
500
450
400
350
300
250
200
150
100
50
0
planning and permitting processes, ample lead time is
required to ensure the supply of building rights. The
average development cycle – from planning to divestment
of the fully developed project – is 18 to 36 months
and the ambition is thus to start new projects early in
the business cycle. In order to reduce tied-up capital and
enable the development of new projects, a rapid pace of
sales is sought.
Generating value, step by step
1. Macroeconomic and market analyses precede
a land purchase, which is the foundation of
the value-generating process. A major step
in value enhancement occurs when undeveloped
land is transformed into a building
right.
2. Suitable premises are designed, in close
collaboration with tenants and prospective
buyers.
3. Successful leasing work is a precondition
for breaking ground. Larger tenants are
contracted at an early stage.
4. The project developer orders construction
services, as a rule from Skanska’s own
construction units.
5. Active management and customer relations
can add further value to the property.
6. New projects are developed with an eye to
future divestment. Sometimes a project can
be sold while still in the construction phase.
Increasing value
The value of land and building rights varies with demand,
i.e. leasing trends and the returns demanded by property
investors. Land value also increases as permitting risks
diminish. A major step in value enhancement occurs when
undeveloped land is transformed into a building right. The
process leading up to an approved commercial development
plan may take several years. Skanska plays a pro active
role, working closely with local government bodies in
planning processes for land use and zoning.
Large-scale leasing sharply increases the value of the
project. Leasing activity begins at an early stage. Value
increases further when the building right is turned into
a completed project that generates rental income.
Close collaboration
To ensure that the development process results in appropriate
and efficient commercial space, Skanska collaborates
closely in its design and planning work with tenants
and potential buyers. Carrying out commercial development
successfully on a long-term basis is also facilitated
by the fact that Skanska has daily contact with the leasing
market. This, in turn, offers insights about changes in
customer preferences and also generates new projects.
Owning a portfolio of completed properties also lends
flexibility Justerad avkastning to the divestment på sysselsatt process, kapital because it enables Voly
till marknadsvärde och redovisat värde 2001−2010 Skanska to time the divestment of these properties 1)
av k
based
%
Mdr k
on market conditions.
30
10
Risk 25 management
8
There are risks in all stages of operations. Such external
20
factors as interest rates, customers’ commercial space
6
needs 15 and the yield requirements and willingness of
investors to buy commercial properties are of crucial
4
10
importance to all decisions in the process. By means of
frequent customer contacts, Skanska tracks the space
2
5
requirements of customers continuously. The occupancy
0
0
level 2001 in completed 2002 2003 projects 2004 2005 and the 2006 pre-leasing 2007 2008 level 2009 in 2010
2
ongoing projects are carefully monitored.
−− Avkastning på sysselsatt kapital, marknadsvärde
−− Capital Avkastning at riskpå sysselsatt kapital, redovisat värde
--- Genomsnitt Avkastning på sysselsatt kapital, marknadsvärde
Risks are limited because the business stream has an
•
--- established Genomsnitt ceiling Avkastning on capital på sysselsatt exposure kapital, in projects redovisat that
värde 1) A
1) Inklusive driftnetto, upparbetade orealiserade utvecklingsvinster och förändringar
have not been leased. Capital at risk is measured as the
i marknadsvärde.
f
sum of the carrying amount in completed projects and
Adjusted return on capital employed at market value and
Volu
carrying amount, 2001–2010 1
Deve
%
SEK b
30
10
25
8
20
6
15
4
10
2
5
0
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2
−− Return on capital employed, market value
−− Return on capital employed, carrying amount
--- Average return on capital employed, market value •
--- Average return on capital employed, carrying amount 1 R
1 Including operating net, accrued unrealized development gains as well as changes in
p
market value.
o
c
Skanska Review of 2010 – USD version Commercial Property Development 45