When Covid-19 hit the UK 12 months ago, amongst the announcements of financial support and guidance, the impact of working from home on office landlords and occupiers seemed to be forgotten. The Government simply recommended that 'landlords and tenants must work together collaboratively' to find 'arrangements outside of the existing letter of their leases in order to create a shared recovery plan'.
Work together? Collaboratively? For many, this was a new concept. Aside from lease commencement, lease expiration and perhaps a rent review or two during the term, communication between a landlord and their tenant is, in most cases, negligible.
But the pandemic kick-started conversations between office landlords and tenants that have, in turn, caused a shift in the industry. As per the Government advice, many landlords and tenants sat down and discussed how they would find a way to survive Covid-19.
In return for concessions and deferrals, tenants opened their books, shared their business plans and provided actual and predicted cash flow in order to agree transparent payment plans for a period of time. In some instances we saw landlords opting for turnover rents, sharing the pain of the pandemic and taking on an invested interest in their tenants’ success.
While the pandemic prompted a shift in the typically passive relationship, occupiers’ expectations from the landlord-tenant relationship have arguably been changing for some time, driven largely by the growth of flexible offices.
We have seen a rise in the number of occupiers that have some form of flexible space in their portfolios, many of which have increased in the last year – some to accommodate social distancing and others to buy breathing space while they establish long-term size requirements without committing to a long term lease.
Tenants that do have serviced space, have become accustomed to the quick responses, accessible centre managers and effective maintenance management that it brings. It’s a sector within the industry that prides itself on service and communication.
Communication between a landlord and tenant has never been more vital and can be a deciding factor in whether a tenant chooses to renew their lease or relocate. All it takes is a landlord to be consistently unresponsive to a persistent building leak or a straightforward service charge query to create a headache for the occupier and encourage consideration towards a relocation, perhaps move towards serviced space, at the next lease event.
But the office market is changing – not just because of Covid-19 or the growth of flexible space, but because occupiers’ demands are changing. Post-pandemic, landlords and real estate teams are both under pressure to elevate the workplace to tempt the workforce back or as the RICS says 'exceed the work-from-home benchmark'. And where better place for a landlord to start than to speak to occupiers and establish what their requirements are?
Be it lease flexibility, a focus on sustainability and wellbeing, or creative and collaborative spaces – landlords and occupiers need to be aligned to ensure the future of the office is one that can truly benefit both.
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