Now is a great time to be thinking about your lease,location, building type as you reposition your business to move forward from the effects of COVID-19. You might not be ready to make a move just yet, but opportunities are becoming available that the pre-COVID market did not produce including lower rents and maybe a better location!
Every now and then, and more often than we plan for,the commercial rental market changes. More often, it is in favour of the landlord, but this time it will be the tenant that stands to benefit. COVID has bruised most businesses, especially those who need physical space to operate their businesses like dental practices and restaurants. Retail has been hit hardest of all and the expected closure of some businesses has already begun.
These closures change supply and demand constants we have seen for the better part of a decade. As predicted, consumer spending will not be at the same level that it was, and therefore sales volumes and revenues for many businesses will be down for awhile as the market sorts itself out. This will influence landlords’ rental income as there will be more vacant space available. What we do know from history and supply and demand theory, as more commercial space becomes available to rent, a few predictable features will be apparent in the real estate market.
Lower demand for rental space:
❖ lower demand creates less competition for space, and therefore tenants will be able to negotiate lower rents than pre-COVID asking and market rates
❖ there will be more space available to choose from
❖ trade areas and buildings that were tough for certain businesses to access will become open to perspective tenants for consideration
❖ buildings that were once too expensive to rent in will be more affordable
Lower rents/larger tenant incentive packages:
❖ landlords will have to fill up vacant space and be willing to take lower rents
❖ landlords will offer significant incentives to rent such as hefty leasehold improvement allowances or longer free rental periods
❖ businesses will be able to afford to pay rent with a lower volume of customers and sales
❖ businesses will be able to offer their products and services at lower prices because they have lower expenses The Effects of COVID-19 on Your Premises Lease -- Vol #3 The Changing Real Estate Market
❖ businesses can look forward to more stable rents at fair prices
Changing customer activity patterns:
❖ businesses will require less space to operate due to COVID type institutions that remain after the pandemic has passed such as smaller waiting rooms
❖ e-commerce will become status quo.
❖ service based businesses can consult remotely
❖ retail businesses will need less space to hold products.
❖ telecommuting has proven to work well, prompting businesses to cut down the amount of office space needed to operate
❖ tenants will prefer to be closer to the ground floor or to work from home instead of attending offices in large office towers which are harder to access with elevator/lobby/capacity restrictions and
❖ new property developments will take longer to tenant as demand for space is less than it used to be
The sentiments of the public, tenants, and landlords all have an impact in shaping the new environment COVID has left in its wake. Tenants can enjoy some breathing room on their rental costs if they negotiate their way into a great deal. If your business is still here by the end of the restrictions, consider yourself doing well. Look for ways to cut down on your expenses such as rent while consumer spending ramps back up. With the new equilibrium in supply and demand in the rental space market, get into a good lease now and lock in for a long term.The essence of a good lease begins with a solid understanding of the prevailing markets, business and consumer sentiments, and strong experienced lease negotiations. Spend your time focused on your business, as our business is focusing on helping you get the best deal you can.