"The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic." – Peter Drucker
When a commercial tenant signs a lease agreement, their balance sheet immediately registers a significant change in the company’s long-term assets and liabilities. The implicit implication is that management commits to an arrangement that may help or harm the company, depending on the extent to which the location, premises, and commercial terms pass the futureproof test. When used well, AI enhances the futureproof test and the tenant's decision-making, thereby mitigating liability risk while optimising the use of the leased asset. Ken Lam, LPC's head of Industrial, notes that “AI tools and intelligence can help industrial tenants futureproof a lease, especially in situations where future requirements and risks are uncertain.”
Futureproofing leases in warehousing and distribution for the tenant
"It requires futureproofing your business through agility, ensuring your leased space can adapt to evolving needs, market shifts, and unforeseen disruptions." - BritWealth, on commercial renting in Australia
Embedded in the above quotation is the growing reality that warehousing and distribution requirements are increasingly dynamic, necessitating adaptation of leased premises to fit evolving needs. AI is invaluable in this context, as it enables: scenario modelling linked to the potential impact of external and internal change; queries pertaining to the projected technology development and the related impact on industrial accommodation needs; simulation of the impact of growing sustainability and compliance requirements; informed consideration of infrastructure developments on location, premises, and commercial terms; thereby facilitating more informed lease negotiations and tenant leverage.
In relation to ensuring premises suitability, AI adds predictive due diligence rigour to test the premises' ability to support automation developments and the ongoing drive for a more productive facility. In relation to location, informed AI models interrogate the impact of potential changes in infrastructure, labour patterns, and zoning. In relation to commercial terms, AI adds to the review of a heads of agreement or draft lease, thereby increasing tenant leverage.
Futureproofing manufacturing lease arrangements for the tenant
"Innovation distinguishes between a leader and a follower." - Steve Jobs
As with warehousing leases, AI is well placed to help a manufacturing lessee futureproof their leasing arrangement by simulating production workflows and their impact on space and layout, testing premises constraints in relation to evolving equipment requirements, projecting production needs having regard to internal and external trends, modelling regulatory trends, interrogating the heads of agreement, and by considering the collective impact on location, premises, and commercial terms. Information is power in negotiations, and the addition of AI to the due diligence process enables a tenant to negotiate from a more informed position.
This informed negotiating position mitigates the risk of landing on an arrangement where the attributes of the location, premises, and commercial terms do not align with evolving requirements. AI adds layers to the due diligence process by predicting how external trends will impact location in the future, helping tenants firm up their operational needs before taking space, and modelling the future risks inherent in key commercial terms.
Concluding comment
"The future of productivity will be defined by human-AI collaboration—machines that think with us, not for us." - Fei-Fei Li (AI Expert, Stanford Professor)
For industrial tenants, AI is an enabler to mitigate the risk of committing to a long-term lease that is not aligned with the tenant’s evolving requirements in uncertain circumstances. AI is most useful to industrial tenants when it is used to strengthen the upfront accommodation planning process and to enhance the tenant’s due diligence during lease negotiations. When used well, AI will increase the likelihood of negotiating a tenant-friendly industrial lease that stands the test of time.
Who is LPC, and how do we help futureproof their accommodation arrangements?
LPC is a conflict-free advisor to commercial tenants across Australia and New Zealand. We facilitate a strategic review of accommodation strategies, represent occupiers to secure the best-fit accommodation arrangements, provide lease management services to multi-site occupiers, and oversee fit-out and relocation for clients. Contact us to help with your accommodation requirements.
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