The Changing Face of Office Tenant Retention

Monday, June 8th, 2015
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Changes to modern office culture mean landlords face a new set of challenges and demands when it comes to attracting and retaining tenants.

Landlords will need to become more flexible on order to meet the challenge of retaining sound office tenants as vacancy levels in Australian CBD ‘s continue to ride high and workplace habits undergo profound change.

The Property Council of Australia’s Office Market report from February indicated that overall vacancy rates had edged higher from 10.4 to 10.7 per cent during the six-month period survey, with much of this increased imputed to the demise of the mining boom.

The CBDs of Brisbane and Perth were left particularly hard hit, with vacancy rates rising from 14.2 to 14.7 per cent and nine to 11.8 per cent respectively, given the dependence of their state economies on the resources sector.

Contingent economic factors are not the only difficulties faced by Australia’s office property market.

Anneke Thompson, associate director with Colliers International, points out that office culture and workplace expectations are undergoing broad changes that could result in new challenges for owners of property.

The desk-bound office environment of traditional white-collar culture could soon be replaced by far more fluid and mutable work arrangements as a result of both ergonomic concerns (“sitting is the new smoking”) as well as the immense flexibility afforded by the Internet and communications technologies.

Under such circumstances, the key to retaining tenants will be the intangible benefits that landlords can provide – chief amongst them cheaper and more efficient services and facilities.

This is exemplified by New York’s WeWork office scheme, which provides tenants with flexible access to healthcare, webhosting, payment processing systems, accounting, legal, cloud computing and advertising services.

“Flexibility will be the buzzword for big and small tenants alike,” said Thompson.

Ken Lam, tenant advisor at LPC Australia, has been a keen observer of such trends in the domestic office market in recent years.

“Over recent years there has been more emphasis on providing a smarter and more efficient working environment, which generally involves providing more collaborative space and break out areas for staff,” said Lam.

“Most organisations are changing the way they work, with open plan areas comprised of less office space and promotion of the idea of working from home, under alternative arrangements that go by buzzwords such as Activity Based Work, Agile Working or Smart Working.

“Most organisations also require flexibility and certainty around the tenure of their lease – generally for the biggest tenants there is a preference for larger floor plans and for space to be over contiguous levels or a single level.”

The rising demand for flexibility amongst users of office space means owners will need to liaise with their tenants more frequently.

“The most effective method owners can employ is to keep in regular contact with tenants and listen to them, providing them with as much flexibility as possible,” said Lam. “This may also involve providing the tenant with contraction and expansion rights in the lease.”

Other conventional factors and supplementary perks will nonetheless continue to remain a priority for most renters of work space.

“Location and cost remain prime factors – predominantly finding the right space or location for the image of an organisation,” said Lam. “Creative organisations in Sydney prefer places such as the CBD fringe and Surry Hills, while financial institutions (prefer) the core CBD.

“Proximity to public transport and on-site facilities such as showers and bicycle racks are also now viewed as a key consideration for most organisations.”

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