Scarcity and Business Growth – Planning for the future

When it comes to offices, size matters

It’s one of the biggest challenges facing new and emerging companies: how to accommodate extra staff as a business grows but its current office space doesn’t.
Similarly, it presents a problem for landlords when tenants need more room to move than what they’re able to provide.

But as a new leasing deal in Sydney shows, landlords are now starting to offer unique leasing conditions in a bid to lock in tenants who might look to expand their operation in the coming years.

Some landlords are providing flexibility for growth by allowing tenants to have first right of refusal over additional space in office buildings

CBRE office services associate director Ben Cohen says tenants are beginning to seek out buildings that provide the potential to grow their space as their employee base increases.

“Some landlords are providing flexibility for growth by allowing tenants to have first right of refusal over additional space in office buildings,” Cohen says.

International design firm Gensler was recently granted the first right of refusal on the 130sqm office space above its current one-level tenancy on Hickson Rd in the Sydney’s CBD, meaning that the company can choose to take up the additional space if and when it becomes available.

Cohen says the building’s landlord was prepared to negotiate further to secure what could become a long-term tenant.

“Due to Gensler’s strong covenant and brand profile, the landlord provided further flexibility by agreeing to a shorter than usual initial term of two years, with a one-year option,” he says.

“36 Hickson Road’s boutique positioning matched Gensler’s corporate profile and once the firm’s staff headcount stabilises, there is potential for a long term commitment at the building.”

First Published at Real Commercial

 

James-CartoonMy Two Cents:

It’s interesting to note as business changes and the demands of business changes all the time it means that we as commercial landlords need to rethink how we approach our leases. Sometimes, creative thinking about our rental agreements can create an even bigger win-win situation.

Additionally from a marketing point of view, giving these businesses first right of refusal for additional office space creates a kind of scarcity effect. “Decide now or miss out forever” may just create a demand that’s not really there that increases demand and ultimately grows your rental yields.