Consider a New Approach to Meeting Your Business Real Estate Needs

William H. Shawn

Co-Managing Partner, ShawnCoulson

Where your business is located, and how you use the commercial space that you have, can mean the difference between thriving and just limping along — or worse. That fact was brought home for many business owners during the COVID-19 pandemic, when lease payments became a big financial strain, and dust was accumulating on the desks of employees working remotely.

Even with the economy bouncing back in many sectors, returning to previous uses of commercial real estate could be a big mistake. Here are some reasons why:

  • You might be overpaying for the property you’re leasing,
  • You might be able to afford better space in a struggling commercial real estate market, and
  • The way your space is configured might no longer be appropriate if hybrid work arrangements prompted by the pandemic become permanent.

Also, with low vaccination rates in some places and the emergence of more potent variants of the COVID-19 virus, it’s premature to declare victory over the pandemic. A recent analysis by consulting firm PWC concluded that “the long-term outlook in the real estate sector hinges on the country’s ability to rein in COVID-19.” Unfortunately, that mission hasn’t yet been accomplished.

A Renter’s Market?

During the worst of the initial phase of the pandemic, some commercial property tenants were missing lease payments and seeking concessions from their landlords. With high vacancy rates in many markets, negotiating more favorable lease terms may still be an option for you — even if your back isn’t to the wall.

A January 2021 market survey by the National Association of Realtors found that around half of them have seen an increase in demand for flexible/coworking office space. Other businesses are moving into smaller spaces or opting for shorter lease terms. 

If many of your employees will be working at least part-time from home after the pandemic subsides, a smaller office space might be enough. But will that affect your workforce productivity during the times when all or most of your workers are present in the office? Regardless, it’s a good idea to reconsider the layout of shared spaces.

Optimize Your Office Space

Work Design Magazine recently reported that remote work, “while undeniably cost-effective [in terms of real estate costs], tends to significantly inhibit collaboration even over digital channels.” One key to maintaining the productivity of work teams in hybrid work arrangements is for office space to feature “project rooms” for teams instead of just dedicated workspace for individuals.

“Employees will need to engage while keeping their distance, and project rooms are a solution if they are fully dedicated to the team and not shared spaces for others to use,” according to the same report. For this to work, however, teams should have “core hours” when all members are required to work at the office.

Also encouraged: Using space design and furniture to create a “home aesthetic to help bring calm and comfort to the workspace.”

Find a New Location?

If you’re not interested in a complete office space design overhaul, there are other potential improvements you can make. As noted, many companies are looking to relocate, often from downtown areas to the suburbs.

That might not make sense for you, but a move to a more desirable location could be in the cards, whether that desirability is based on easing employee commutes, being closer to your customers or just relocating to a more attractive building. That’s because with high vacancy rates driving down rents, and the possibility that you can downsize, locations that were previously unaffordable might now be within your means.

If you’re only halfway through a five-year lease, making a quick move might not be an option. But beginning to make plans to relocate could allow you to make the best decision. And involving some employees in the decision-making process, regarding where to move, could be motivational to them.

Negotiating Tactics

Finally, what if your best opportunity in today’s environment is simply to strike a better deal with your landlord? Several approaches might work, after you read your lease carefully to be sure you understand what you’ve committed yourself to. It’s also smart to do some sleuthing to find out whether any of your landlord’s other tenants have successfully negotiated better lease terms. And check out the occupancy rate for properties like yours in your area, to get a feel for how eager your landlord might be to keep you as a tenant.

Here are some possibilities:

  • Ask for an amended lease with a reduced rent and no strings attached,
  • Agree to extend your lease, but with reduced rent,
  • Agree to pay the contracted rent if the landlord foots some or all of the bill for improvements you want to make in your leased space,
  • Ask to be able to sublease some of your space (assuming that isn’t currently an option), and
  • Ask to reduce your base rent but add a business revenue-sharing formula that would allow you to pay more during months when you hit specified revenue targets.

In general, the more you can share with your landlord about why you need to make a change, and reassurances you can provide that the new arrangement you’re seeking will be financially sustainable for you, the better. If your landlord feels ambushed, you’re less likely to get what you want.

A commercial real estate leasing professional might be a good source of intelligence and negotiating ideas to help you reach the best possible outcome. As the saying goes: Nothing ventured, nothing gained.