Rewind some five years ago and companies were signing long-term leases and combing frantically for office space in sought-after hubs such as Sandton, Rosebank, and Cape Town CBD.
Owning or leasing a commercial property in a prominent area equipped with all the bells and whistles was crucial to a brand’s image; these newly built buildings looked to create a lasting impression on both clients and staff, and were hubs for creativity and productivity.
The same can be said on the international front. In 2019, office rental prices were drastically increased in Manhattan (New York) to cope with mounting demand. Fast-forward to now and office leasing activity is down by 70% (Globest.com).
While office space remains in place for many companies, its purpose has shifted. It has become flexible and is more focused on collaboration rather than the standard ‘9 to 5’ grind. With this in mind, it’s no surprise that landlords are working hard to attract tenants in new and unconventional ways.
“In the past, tenants would sign into leases of 5-10 years, on average. Today, flexibility is key where landlords need to get used to the idea of office space as a service,” explains John Jack, CEO of Galetti Corporate Real Estate.
“COVID-19 taught us to prepare for every eventuality and flexible leases provide this peace-of-mind for both landlords and tenants”. “What COVID has done is break the psychology of having to be at the office by 8am”
Jack says: “Average rental collections for our clients were hovering around 80% in the harder lockdown levels and are already starting to recover to 90% and above. Office and retail space are struggling more than industrial space which remains in high-demand”.
“Deferred rentals are now starting to be due for payment and at the same time judging by the traffic in the streets revenue has arrived back to support business. “ It’s those tenants that are still struggling with cashflow and having deferred rentals fall due that are going to potentially face failure if the landlords aren’t able to carry them for a little longer.”
What’s Trending Amongst the Big Landlords
Free rent and massive incentives in terms of CAPEX contributions which are at 20+ year highs. Again the landlords are in competition with their own tenants as tenants start to sub lease space on very attractive terms.
“Tenant incentives are on the rise and we are seeing an influx of innovative ways to ‘move’ office space over this challenging period,” notes Jack.
“In recent months Redefine has bolstered their balance sheet with the sale of non-core assets to help absorb as much as a 50% rental income decline. They have cut back on non-essential expenditure and have supported their tenants through rental relief”.
Redefine recently launched a service called Space2Spec. “This allows a new tenant to customise their rental on selected properties on offer,” he continues.
GrowthPoint, on the other hand, has developed SmartMove. An incentive program in which tenants receive 125% of their first year’s rental back in allowances when moving into one of GrowthPoint’s smartmove buildings. This is based on a five-year lease.
“Tenants signing a three-year lease will receive 75% back in allowances”.