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Looking to make a Commercial lease decision in 2021?

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Talking to David Hallett from Company-X just before the Christmas break, we discussed our reading habits and what grabs or maintains our attention when reading articles. David was very clear in that he likes to get comment about ‘how to….’

Mike Neale

On that basis, I thought it might be an opportune time to give my view on what tenants should consider when making such an important decision. It is inevitable that the banter around the barbecue over Christmas and New Year’s will lead to more people making such decisions early in 2021 than previously. With industrial vacancy rates of around only 1 percent and a distinct shortage of quality commercial spaces available, those that make early decisions may be glad they did so.

Having made or still contemplating the decision to lease a new premises in 2021?
If you are in existing premises, consider the options here first. Could this tenancy be modified or made to accommodate your future requirements? If it can, then it’s worthwhile talking to your current landlord to discuss those possibilities. However, if you have made the decision to relocate or take up a tenancy, then what have been the drivers to relocate or what should you be looking for with a new commercial premises?

What sort of questions should you be asking yourself?

  • How many staff do I need to accommodate? Do I need storage?
  • How does the space need to be configured? Do I need individual offices or can I occupy open plan space, which is often far more efficient and economic?
  • Easy access for customers and clients?
  • Branding or signage opportunities?
  • Car parking? How many do you really need (not how many would you ideally like) and what are options for staff within a reasonable walking distance?
  • Is this the right location for my business? If it is retail based, what is the profile and/or are the pedestrian counts like?
  • What quality of space do I need or want to be in?  Better quality space and local amenities will be an attraction to both recruit and retain good staff
  • Do you have a seismic requirement for the building? The legislative requirement is to be above 33 percent NBS (New Building Standard), with government and some corporate tenants needing to be above 67 percent NBS.
  • Do you have a rental budget? Make sure you consider the gross operating cost, which includes Opex (rates and building insurance etc)

Increasingly, tenants are asking questions about potential landlords, as it is likely to be a long-term relationship (hopefully) for the benefit of both parties. Landlord reputations in times of uncertainty, as we have now, are an increasingly important factor for consideration – Hamilton is fortunate in that the vast majority of landlords appear to be good people, looking for fair outcomes.

How long a lease term are you considering committing to?

The longer the initial lease term, the more flexibility and the more goodwill you will get from a landlord, either in terms of rent free, capital works or other contribution.

If it’s a start-up type business, you may be considering a shorter initial term of lease, or if it’s small office space, then shared or co-working space might be a good option. You may be paying a higher rental rate, but you aren’t locked into a long-term lease commitment and retain flexibility if you need to upsize or downsize.

If it is an existing business, then it is important to determine and prioritise the factors that you are seeking in a premises. It is inevitable that you will need to make compromises, so be very clear in determining what is actually important and what items are just ‘like to haves’. If you have a good and established business, then don’t be afraid to back yourself to provide stability and make a long-term lease commitment in the best interests of your business.

I have seen relatively novice retail businesses or owners make poor business decisions based purely on their proposed rental budget, without taking into account the fact that they could pay a little more and benefit significantly from increased pedestrian counts and/or profile. The same applies to office space, where a little more rental will often provide a better working environment and place to build culture – the cost to recruit, train and retain staff is significant, so provide an environment that will enable staff to thrive.

It has become increasingly important over the last couple of years and significantly more so since Covid with the advent of working from home, to provide an attractive work environment, where staff want to come to work and will be more productive. This can be much about the business culture you have created, but cannot be fully developed without a desirable physical environment and providing access to good amenities in the immediate surroundings.

So, do not be afraid to make a decision and be prepared to make compromises, as procrastination will not be your friend when it comes to having to make strong business decisions in this fast-paced and changing environment that we live it.

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Mike Neale