The amount of empty commercial space out there is overwhelming. There are about 395 vacant spaces in the Townsville CBD/4810 area alone according to a leading commercial lease website. I can understand the caution displayed by office tenants and the need to cut office space to lower overheads. It is commercially prudent to grow the business before commitments are made to lease more space. The problem is not overbuilding but the cyclical downturn in demand following the GFC.
Added to this is the relocation of major financial and insurance services players from the Townsville CBD and its centralisation to Brisbane/Sydney/Melbourne. But the capital cities are not immune either. Office Vacancy rates in capital cities vary between 10 and 12%. Further what is happening in the capital cities is that some tenants, locked into long leases, are looking to sublease excess space.
If you are a tenant looking for premises my advice is to negotiate hard and don’t be afraid to walk away. Don’t become emotionally attached to a site because there is so much to choose from. Visit www.leasefranchise.com.au for some more handy tips on negotiating commercial lease terms. We are also finding that large retail shopping centres are more flexible offering tasty incentives as well as a willingness to amend their standard terms. In the result the tenant is getting a lot more bang for buck. My advice to commercial building owners:
• Use this slow period to modernise and refurbish to make the premises more attractive. I am astounded at the dilapidated state of some buildings for lease. It’s a bad look for the city and affects the lease attractiveness of better shaped buildings in the vicinity. Landlords need to step up the spend on building improvement because it are an essential part to the revitalization of the City. And I am not talking about a smearing of lipstick. Savvy commercial building owners should be looking at the latest interior and exterior design trends and discussing cost effective improvements with their architect or builder.
• Accept the facts and lower their rental expectations. The game has changed. Some Lessors still have their heads in the clouds. It is better to secure a tenant at a lower rent then to have none at all. When the economy heats up a market review of the rent will bring things back to balance
• Be prepared to offer realistic incentives.
• Be more flexible in negotiating the fine print wording of lease terms.
• If you have a tenant, keep them. It may be ages before the space is filled again. My advice isn’t what commercial landlords want to hear. I am a commercial building owner too but I accept the reality of the market. Rising costs have also precipitated tensions between landlord and tenant and disputes over outgoings maintenance and repairs are more commonplace. I have represented both landlords and tenants in these disputes and am more than aware of the competing approaches to lease interpretation.
For more information please contact Evan Sarinas.
This release is not intended as legal advice and all liability is disclaimed for reliance on it.
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