The need for office accommodation arises for many different reasons. The drivers include business growth, business start-up, expansion into a new geography, lease expiry, current premises being subject to redevelopment, and the business need for a change in location or premises characteristics.
Regardless of the driving force, a common mistake among office occupiers is prioritising physical spaces over a comprehensive assessment of their business requirements and future risks. This oversight can lead to a significant issue during the lease term, where the disparity between the space and the business needs becomes increasingly apparent, potentially harming the business.
A key maxim for LPC advisors is to think 'business before space'. This point of departure helps to negate the potential for an office occupier to commit to a space and tenancy arrangement that is misaligned to the evolving business needs and risks. In our experience of advising and representing office occupiers for the past 30 years, we found that it is common for occupiers to give insufficient time and attention to determining the medium- and long-term accommodation requirements, having regard to potential business risks before considering space and place. To mitigate this, we follow a process that helps clients marry their business strategy and business risks with a pre-defined accommodation strategy that includes an informed picture of the right location(s), right premises, and right commercial terms, and that has regard to the commercial real estate market, workplace trends, and building trends. This upfront focus on getting the end goal right for the business creates guiderails for the search and assessment, increasing the probability of ending up with a location, premises, and commercial terms that work for the business throughout the lease term.
One of our team has a saying, "There is nothing so painful as being stuck where you don't belong". When it comes to office tenants who are always at risk of being stuck where they don't belong, this dilemma is not always obvious at the outset of the lease arrangement. Think about the pandemic impact on tenants who were stuck with lease commitments without utilisation, an office tenant who's stuck with a long-term lease commitment in a CBD location that has become less appealing, a medical practitioner reliant on locational goodwill who's forced to relocate due to a lease expiry with no viable option to renew, an office tenant who discovers building limitations that restrict the intended utilisation, a tenant having no alternative but to exercise an option to renew that significantly increases occupancy costs, or a multi-floor professional services company committed to 10 floors in an iconic CBD building whose use of the premises has decreased by 50% due to the WFH impact. Being stuck where you don't belong will always evidence itself in a misfit between the business's requirements and your commitment to a specific location, premises (building type and functionality), and commercial terms. Although this misfit may only show itself later in the lease term, it is unwanted and harmful to the business. Fortunately, this situation can be mitigated by thinking about' business before space', and by an effective negotiation process focused on the ‘end in mind’.
