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Don't Let Uncertainty Fuel Bad Decisions

Business Services & Best Practices Office Landlord & Tenant Strategies

This article was also published in Commercial Property Executive (June 15, 2020)

It’s hard to believe that just a few months ago, WeWork’s financial indiscretions and ultimate future was the biggest challenge facing the commercial office industry. But like a tidal wave of recycled copy paper, the COVID-19 pandemic hasn’t just altered the office marketplace for landlords and tenants, it’s permanently changed the landscape. While many aspects of the industry remain uncertain and open to speculation, there are several things we know that can be done, and avoided, to move forward. They require nothing more than patience, solid judgement, and some good old fashioned integrity.

First we need to consider the three types of tenants in play right now:

  1. Those who are locked into an existing lease
  2. Those who are getting ready to sign
  3. Those getting ready to modify their space in reaction to the pandemic

The most important thing to keep in mind is that every situation is unique and there is no one-size-fits all answer in today’s environment. Each instance should be examined as though it is singular, and what may have worked for a few (or even 10) tenants, may not be the answer for tomorrow’s next challenge.

For tenants who entered the year with a signed lease in place, there are a wide range of possibilities. Some tenants may be performing essential duties and are facing very little disruption, while others are in desperate need of help in getting through this difficult time. For the latter, any rent deferment or lease restructuring needs to be cause-driven and the tenant will need to present some very specific reasons to obtain results and/or change lease terms.

It should go without saying that using this crisis to take advantage of a landlord’s good will is a terrible idea and will not only permanently hurt your relationship, but prevent any future chance at relief or forgiveness when it’s actually needed. Remember, what you do now will impact what happens down the road. And since we have no idea where we will be in a few months, or next year, being honest and transparent now is imperative.

But what if you are in the process of negotiating or preparing to sign a lease? My advice is to wait. Push the pause button. Whatever market you are in, it is certain that it will be affected in a negative way. How exactly and when exactly is still up in the air but we fully expect rental rates and concessions to move in tenants’ direction. Nationally, the market is extremely tenant-friendly and if your business allows, waiting can save thousands of dollars over the life of your lease. There’s no sense in signing a long-term lease if you don’t absolutely need to. And for brokers, this is a chance to show true integrity and build trust with clients by encouraging them NOT to rush into an agreement simply to secure a deal.

But what about the third group I mentioned? For tenants already in a lease and working to modify or update their existing space, again, I advise a little bit of patience before making any drastic decisions. Perhaps your company, like so many, has had to reduce staff or has employees working from home. Keep in mind, that is merely your present situation, not necessarily the one you’ll find yourself in come 2021 or 2022.  Whether it’s to accommodate an existing work environment or to save money, making drastic modifications that could be obsolete or worse, hinder your ability for future expansion, will slow your operation at the precise time when you need to grow and succeed.

There is also a lot of current discussion as to what the office of tomorrow will need to look like in a post-COVID-19 world. Unfortunately, that discussion is changing weekly and just because a consensus may soon take shape, jumping on a budding trend could prove to be a costly mistake. For example, up until mid-March, an open office design was considered an ideal environment, perfect for collaboration and productivity. Now, in the COVID-19 world, open office plans are seen as a breeding ground for viruses and designers are trying to provide an answer. Perhaps fueled by panic and urgency, many tenants will rush and revamp their spaces, going all in on a new plan that seems to fit their immediate needs.

Repeat after me: do not be a trendsetter! Pump the brakes and wait to see what shakes out.  Just because an office without walls will soon be seen as unhygienic, it also doesn’t mean we’re going back to the age of cubicle farms. Overshooting a trend now will only guarantee one thing- you’ll be stuck with something unsatisfying later on and unable to reverse course without considerable expense. It could also end up hurting your business in ways you did not anticipate. 

It’s basic human nature to want to control a seemingly out of control situation. But making hasty or unscrupulous decisions to find certainty is not the answer. Now more than ever, it’s critical to work with an experienced SIOR broker with in-depth knowledge of the market. SIOR members are always the most informed experts in any market and motivated not by a commission, but by doing what’s best for the client. Find one in your region, sit down and discuss your long term goals, and come up with a plan that works not for today, or tomorrow, but for the brighter days ahead.

Matthew D. Levin, SIOR, LEED AP

Matthew D. Levin, SIOR, LEED AP

Principal at West, Lane & Schlager Realty Advisors specializing in tenant representation, market analysis, and long-term strategic planning. He has particular expertise in addressing the real estate needs of associations, not for profit organizations, professional services companies and law firms and has worked extensively in the downtown Washington, DC office market.