Occupiers stake their space
The focus is firmly on tenants as property owners strive to keep total returns in positive territory.
Total Property - Issue 7 2022
As businesses recalibrate and regroup after pandemic-related dislocations, one thing is patently clear – now, more than ever, premises must be fit-for-purpose and have pulling power for staff recruitment and retention.
The flight-to-quality continues across the office, industrial and retail sectors and discussions around lease structures and terms are multi-layered as all parties to a deal jostle to be heard.
After an extended period of flux, we’re seeing significant expansion in the business domain with larger office tenants making growth decisions based on positive revenue results, and SME sectors like information technology flourishing.
Office occupiers continue to gravitate towards premium A-grade buildings, as employees seek better workplace experiences and stakeholders drive home environmental, social and governance (ESG) goals.
Industrial and logistics occupiers are hunting for modern, future-proofed premises that fit new templates for more time-sensitive and ultra-streamlined operations.
Retail leasing activity is also starting to rebound, particularly in the luxury brands, athleisure and sporting goods categories in prime locations.
With the cost of debt and business operational outgoings rising, as everything from energy bills to wages escalate, there’s lots happening in the occupier space.
Landlords wishing to stay ahead of the game are changing up traditional thought patterns and being more responsive to occupier needs – especially in the secondary office market.
With net effective rents under the spotlight, and banks putting pressure on landlords around weighted average lease terms, building owners are very wary of rising vacancy levels and dwindling bottom lines.
There is also the added hurdle of rising fitout costs. Office occupiers are increasingly looking for turn-key solutions where the hard yards have been done, while landlords are battling inflationary pressures, supply chain and raw material hiccups and labour shortages.
We’ve always maintained that property is a people business and that’s never more accurate than today as the market resets.
Occupiers seem to have the upper hand right now, requesting landlords provide longer fitout timeframes and longer rent-free periods, for example.
Landlords willing to engage with occupiers to find common ground, and prepared to be flexible, are spending money to make money and sealing leasing deals.
Business owners are evaluating their Capex columns closely and trying to find more cost-effective space solutions – particularly in markets where there is an oversupply of space.
Building owners are also doing their sums and, with banks playing hardball on loan-to-value ratios, some landlords are opting to sell rather than navigate the leasing arena.
This opens the door to owner-occupiers who, in the face of rising rental rates, are considering ownership as a hedge to inflation and with more properties coming to the market with vacant possession or passing leases, SMEs are active in the owner-occupier market currently.
It all makes for interesting times in the commercial and industrial property market and demonstrates the perpetually cyclical nature of this industry.
In closing, I’d like to acknowledge the outstanding work of Bayleys’ commercial and industrial teams around New Zealand as they continue to excel in a market that has seen considerable disruption and challenges since 2020.
A special shout-out goes to the team at Bayleys House in Auckland Central, for receiving the Large Commercial and Industrial Office of the Year award at the 2022 Real Estate Institute Awards for Excellence, the industry’s annual national awards evening.
This accolade reflects the stellar job our brokers, managers, and administrators do to maximise the value of our clients’ property assets – and we see this right around the country – it’s the Bayleys Way.
You can leverage our extensive experience and award-worthy industry nous for any of your commercial and industrial property requirements, so please get in touch.
Read more market insights from Total Property
Subscribe to receive the latest commercial news and insights from Bayleys Total Property