Coopetition | Renew or Relocate | New Lease Norms for Commercial Property

Well, it's coming to Christmas, and the holiday season is upon us. The commercial property market is not slowing down, with more occupiers becoming future-focused in their property negotiations as they plan for business beyond the pandemic.

In this edition of our Newsletter we look at the key guiding principles we at LPC follow to get tenants and landlords aligned, provide expert opinion on the need for tenant coopetition to improve tenant negotiating power, and link you to our free Occupiers Guide that will help you decide if you should renew or relocate.

The need and opportunity for tenant coopetition

Coopetition is a rarely used word and a seldom used strategy. The Cambridge Dictionary defines coopetition as 'the act of working together with a person or company who is your business competitor in a way that benefits both of you'. It is LPC's view that commercial tenants can usefully apply coopetition to strengthen the tenants' voice and influence on leasing arrangements. Furthermore, the pandemic highlighted the absence of tenant protections when Covid-19 restrictions impaired the utilisation of the leased asset. The time is right for a loud tenant voice calling for more flexible leasing arrangements to support tenant enterprise in uncertain circumstances.

Commercial tenants start in the outside lane when it comes to leasing negotiations.

There are many reasons for this with the main tenant disadvantages being that they have less access to key information than landlords, and tenants are fragmented and focused on their respective businesses whilst landlords are concentrated and focused on securing acceptable shareholder returns on their property investments.  The outcome is that leasing norms provide landlords with strong assurances of favourable income streams, regardless of changes in the utility value that the tenant is deriving from the leased asset. Tenants are seeking to adapt their businesses to align with the current uncertainties and economic recovery challenges, and amendment of leasing arrangements is essential to this realignment. This is where coopetition can play a part and help mitigate the disadvantages of asymmetrical access to information and fragmentation.

The question then is how to apply coopetition to give tenants a louder voice and more influence over leasing arrangements. At LPC, we work with associations and franchisors whose members and franchisees are tenants with the same need for more flexible and tenant-friendly lease terms, albeit tenants have different businesses and are often competitors. These relationships facilitate tenant education, more access to crucial leasing information, growing tenant awareness of the business risk tied to long-standing lease norms, and a more informed and cohesive approach to lease negotiations.

Where there is a common landlord with multiple SME tenants, we encourage tenant forums to speak to landlords with one voice, pursuing more supportive tenancy arrangements. We apply several other expressions of coopetition to increase tenant influence in lease negotiations, with the common theme being to make the tenants' voice louder and stronger. 

Tenant coopetition is an essential strategy to overcome the structural disadvantages that commercial tenants face in lease negotiations.

Pandemic takeaway #4 - “A new lease norm that will accelerate economic recovery”

Globally, economies are in recovery mode as we start seeing the light at the end of the pandemic tunnel. Recovery is multifaceted, and commercial leases have a part to play in its acceleration.

Our expert tenant advisors at LPC ANZ focus on three guiding principles which aid tenant enterprise recovery:

1. Align Landlord and tenant interests: whereas in other sectors like hospitals, travel, banking, migration and labour, stakeholders were quick to respond with a view to facilitating recovery, this was not the case in commercial tenancies where landlords generally protected their interests (forcing government intervention via legislation). Our advisors advocate strongly that landlords and tenants need to work together with a view to tenant enterprise recovery - tenant arrangements that aid in the success of tenants’ businesses benefit all, and a paradigm shift in landlords views is necessary.
2. Focus on the tenant’s utility value: at LPC our maxim “business before space” encourages tenants to focus on the granular details of their accommodation requirements. The aim is to allow for future growth and changing requirements, as well as risk mitigation (something that is at the forefront of tenants minds due to experiences during the pandemic)
3. Emphasise the long-term impact of lease norms: the long-standing existing lease norms have significantly contributed to business failures due to inflexibility. Latest figures from ASIC show business survival rates are down: businesses with annual turnover below $50,000 fell from 78% in 2018 to 48% in 2021. Similarly, businesses with turnover between $50,000 to $200,000 recorded a 64% survival rate in 2021, down from 87% in 2018" (Source – ASIC, Australian insolvency statistics). Our belief is that tenancy arrangements that encourage sustainable tenant enterprise benefit the economy as a whole, and we work to negotiate future-proof terms for our clients

For the full article click HERE

Did you know that we put out extensive quarterly, tenant-focused market reports for the office sector across all major commercial centres in Australia?

Our Q3 reports for retail, industrial and office across all major centres were delivered via webinar by our Tenant Advisors over the past two weeks. The office market summaries are now available on our website. Click HERE to access.

Renew or Relocate?

A question we often get asked, and a deceptively simple question. To correctly answer this, one needs to consider numerous factors: accommodation needs now vs in the future. Future potential growth. Layout and fit-out requirements. Facilities. Sustainability goals. Does your space reflect your brand? 

When answering these questions, it may be beneficial to refer to our Occupier Guide: Renewal vs Relocation.

You can download it for free HERE

LPC Offices across ANZ:

SYDNEY BRISBANE ADELAIDE PERTH MELBOURNE

AUCKLAND