Existing tenants seeking rental concessions or holidays is just the start of the impact of Covid-19 on the commercial property sector. The role of the office in business is being fundamentally questioned. There is increasing data to suggest that in the post-Covid world there will be a sustained shift to a better blend of office and home working. Many businesses now know they don’t actually require an office to exist, but that it should be used to enhance elements of its day to day operations and workforce experience.
Surveys suggest that 80% of office workers want to work from home at least 2 days per week, and that many forms of work are performed better away from the company open plan office. This presents a perfect opportunity for business leaders to simultaneously please their staff, improve business productivity, and significantly cut costs.
This is a truly sustainable business decision for tenants – financially, socially and environmentally. As a result, landlords would be wise to embrace it. Our office listing site will enable landlords to advertise vacant leasehold office space ‘by the day’, i.e. each tenant has it to themselves on allocated days.
Offering rented office space by the day, alongside conventional sole occupancy marketing, enables landlords to increase their chances of finding tenants by offering greater flexibility, as well as to compete with co-working and serviced office providers. It enables tenants to have exclusive use of an office but only for the number of days per week required, thus driving substantial savings.
Landlords who adopt the Space 3:2 hybrid office model are helping to protect their asset value, by increasing the lettability of space, mitigating against void periods and empty space, driving rental levels, and minimising tenant defaults. They are also responding to occupier demand and helping those businesses to flourish.
Below we explain when and how it applies.
Landlords can advertise empty office space on our listing site on a ‘by day’ or ‘by week’ basis.
Leasing an empty office space for 3/5 days per week should generate 60% of the income from a full lease agreement. That will ensure you are not sitting on a liability, will protect your asset valuation by achieving £/sqft targets on a pro rata basis and will enable you to find a 2nd tenant for the other 2 days. Two tenants sharing one space sill deliver a premium.
This approach will require two separate lease agreements, unless you find a tenant prepared to take the full lease with permission to sub-let.
You don’t need to commit to set up costs until you have found a tenant.
Sharing by way of a licence agreement
When a tenant is still some way off from lease break or expiry, and finds itself with under-utilised space it may look to offload surplus space or downsize. Traditionally, the principal option available to the tenant to dispose of ‘part only’ of its leased space is by means of a sublease. It may, however, wish to increase the number of home working days for its staff while retaining the whole office for the days that it’s in. Here it would look to adopt the hybrid office model and search for a ‘partner company’ with which to share its office on a ‘by day’ or ‘by week’ basis (for exclusive occupation at the times allocated to each company).
This will require landlord permission and the need for the original tenant to enter into a separate licence agreement with its ‘partner company’. Your direct tenant will retain full responsibility for the lease (in a similar way to a head tenant / sub-tenant relationship), and will cover the legal costs associated to lease amendments.
You may have a tenant who is happy with its existing tenancy (i.e. likes the office space, building, location, etc.) but that feels it has no choice other than to exit at lease break or expiry because of prohibitive rental levels for the area and / or under-utilisation of space. Or simply that it wants to implement a better blend of home and office working for its staff. In this situation, listing with Space 3:2 could be just the solution and might provide that perfect win-win situation. You retain your original tenant on the basis of a reduced number of days per week / weeks per year and second company is found to take the space for the remainder. Each company enjoys exclusive occupation of the space on its allocated days / weeks. You, the landlord, can therefore ensure a happier pool of tenants and better utilisation of space, which in turn underpins and drives asset value.