Corporate Real Estate—time to negotiate a better deal?

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Corporate Real Estate—time to negotiate a better deal?

September 7, 2020
By Narta
Unlike past economic challenges, COVID-19 is having an immediate, widespread impact on the Corporate Real Estate (CRE) industry across the globe. There are opportunities to review your leasing strategy and also take the time to look at whether you have excess space you don’t need that you can let go or sub-lease. There are also Government supports across all states and the commonwealth to support business with negotiating or deferring rents where possible.

Views from Australia

Real estate firm JLL is reporting a 30 per cent up-tick in tenant demand for ready-to-occupy Sydney office space since the start of the COVID-19 pan-demic, with larger companies the driving force be-hind the trend.

The company has noted 80 per cent of tenancy briefs brought to market since the beginning of the COVID-19 crisis have been requesting fitted-out spaces – a 30 per cent increase on pre-pandemic levels. From the companies point of view a fitted-out office was attractive not only from a cash-flow perspective but also due to the reduced move time between buildings.

With the latest survey from national valuers m3property reporting that prime office space has had up to a 10 per cent fall in value as a result of COVID-19, regional retail enduring a hit of up to 20 per cent and hotels outside tourism hubs or cities seeing a drop of up to 25 per cent, there is cause for concern for property owners but opportunities for renters.

The NZ Experience

This time may also present opportunities to make the sector more resilient for the future.

While the Federal Government put forward the code of conduct to make sure landlords and tenants shared the costs of the COVID-19 crisis, there could be room for that kind of situation to be more formalised in other circumstances.

There’s this fear that maybe another virus could come, and how do we deal with that in a balanced, structured way going forward?

The New Zealand legal changes put into leasing agreements after the 2011 Christchurch earth-quake might prove a valuable contribution to the discussion.

Changes to the Auckland District Law Society (ADLS) Deed of Lease, commonly used throughout New Zealand for leases of commercial property, include a provision where premises were undamaged but couldn’t be accessed, as with this virus.

In this situation, instead of the tenant being obliged to continue paying rent and outgoings, they are entitled to a fair reduction in the rent and outgoings until the premises can be used again. If the situation continues for nine months – the default period in the lease – either party is entitled to terminate the lease.

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