The pandemic accelerated the WFH and online shopping trends, fuelling uncertainty in CBD real estate markets. This uncertainty generated significant opportunities for office and retail occupiers to improve and de-risk their accommodation commitments by reviewing, renegotiating, and repositioning these arrangements. However, with real estate uncertainty and change comes the potential for increased business risk unless the long-term accommodation strategy is aligned with the long-term business outlook and risks. This is why LPC advisors focus on 'business before space and place', implying the need to ensure accommodation arrangements and commitments are underpinned by well-informed judgement.
Eleanor Roosevelt counselled that it is wise to "Learn from the mistakes of others. You can't live long enough to make them all yourself". The pandemic highlighted a common lease negotiation mistake that tenants do well to learn from in the future. In summary, almost all commercial tenants across Australia had lease terms that required uninterrupted tenant obligations, notwithstanding impaired utilisation of the leased premises due to lockdowns and related responses to COVID-19. The mistake was, and is, inadequate attention to linking lease obligations to utilisation, this being just one example of the need to more thoroughly consider' business before place and space'.
At LPC, we encourage tenants to ensure the foundations for place and space commitments are well laid by undertaking a rigorous, long-term accommodation strategy ('LTAS') exercise. We advocate that this is done periodically and well before a trigger event such as a lease expiry. The LTAS process is designed to draw out the long-term business outlook, strategies, and risks and to ensure the LTAS adequately considers the workplace trends and the real estate market outlook into the future. As tenancy commitments are long-term and binding, the LTAS aim is to achieve guiderails for negotiating a landing point that represents the 'right place, the right premises, and the right commercial terms', and that this landing point works from day 1 through to the end of the lease term.
Stephen Covey said one must "begin with the end in mind", which is sound advice for an occupier making long-term accommodation commitments. A well-informed LTAS begins with the end in mind and is a solid foundation for negotiating accommodation arrangements that play a part in future-proofing a business.