Property occupancy costs account for a significant part of a retailer's turnover. For most, they comprise the second or third biggest cost after staff.

There is more pressure today than ever to save costs and drive value from the real estate portfolio. It is no longer a game of expansion through acquisition of floor space or market share gain; rather, it is about sourcing, exchange rates, competition, diminished product differentiation, declining margins, challenging trading conditions, cost control and liberating expenditure.

The economic downturn presents an opportunity for retailers to use their real estate more efficiently; adding value and releasing funds to their businesses. There are a number of ways a retailer can cut property costs. These include reducing the space it occupies, not just in its stores, but also in its office and warehouse-based functions. Portfolios need to be reviewed regularly to assess if there are properties that could be vacated and disposed of.

As market rents fall and vacancy rates rise in some locations, landlords will become increasingly keen to attract and retain tenants, offering opportunities to re-gear leases when they expire or reach a break option. Rental growth for 2008 was negative at -1.1 per cent; the worst annual performance since 1992, which is good news for retailers, arguably less so for landlords. Research carried out earlier this year showed that the average availability rate across some of Great Britain's prime retail areas was 11.2 per cent. Success should be measured by renewing leases before, and not at, the expiry date. It is not just about the rent, but also less space more efficiently used, dilapidations and a service charge audit.

Better capitalised occupiers may be able to take advantage of distressed landlords by buying leased properties and saving significant future rental payments. For instance, the freehold of a 30,000 sq m store in Manchester was reportedly bought for £35million, saving £2 million a year in rent.

Cash is king in today's market place. For financial directors, managing the business's working capital and communicating financial performance to stakeholders are key factors today. Some businesses have failed despite being profitable (and some long-term loss-making businesses have survived). Property can be a cost-efficient and available source of finance.

Retailers have always been an innovative bunch- they have to be to survive. But the challenges ahead are likely to get tougher. Not only must retailers innovate to at least maintain or preferably improve their consumer draw, they also have to master their store locations and tenure patterns correctly, while squeezing costs and efficiency from their property portfolio to improve service levels and profit margins.

The real estate portfolio needs to be battle ready for retailers' changing business needs. The focus has to be on understanding their operational needs; knowing what they have, where it is and what it costs.

- Dr Yvonne Court is a partner, at Cushman & Wakefield, a global real estate services provider

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