As we at AW are seeing first-hand, the business of renting out office space is changing drastically. COVID-19, the rise of technology and a general change in working models are beginning to spell the end for fixed,long-term leases. Therefore, the need for landlords to adapt to more flexible income models is becoming greater than ever.
Major companies such as Google and Twitter have already touted the idea of maintaining working from home, either to a full or partial extent, for the foreseeable future. This leaves landlords in a potentially precarious scenario. Gone are the days in which they could rely upon landing along-term lease for an entire building off of a big corporate player.
Landlords, therefore, need to get creative in terms of income models. In a COVID world, where revenues are plummeting up and down and the future of the physical office space is up in the air, businesses are no longer take the risk of signing up for fixed leases. Therefore, models such as revenue splitting, profit sharing and occupier management agreements are becoming rising trends within the industry.
With both companies and landlords facing potentially tough times, there is an innovative solution that can reduce risk and increase earnings for both. Through revenue splitting, landlords and occupiers agree a set percentage of an occupier’s revenue that the landlord takes, in exchange for a partial waiver of rent. Companies are more likely to be drawn to flexible models like this, that does not force them into long-term fixed costs in uncertain times.
Similarly, profit sharing allows for a reduction in rent for an occupier, whilst allowing a landlord to benefit alongside the companies hosted within a building. At AW, we are used to forging strong relationships with the many businesses we host. Strong landlord-tenant relationships, built upon a belief in the occupying companies,can create returns for both occupiers and landlords. Where the large expense of a fixed rent may deter a growing business from renting office space, a profit share agreement is more flexible and could age as a shrewd investment for a landlord in years to come.
The occupier of a building can often directly benefit the building and by extension, the landlord themselves. Today’s office spaces are likely to play host to a changing roster of different occupiers, as companies and freelancers alike rent space on a more flexible and short-term basis. At AW, we prepare office spaces for this new dawn of flexible co-working. As an occupier, our brand and vision lead to tangible benefits for a landlord. There are, therefore, many ways that occupiers like us and landlords can profit alongside one another.
There’s no reason why there should be any antagonism between landlords and their occupiers. Often our interests are the same. Furthermore,in challenging times such as these, we are facing related issues that can be overcome together. Therefore, working with landlords to plan creative and flexible rent solutions is a healthy way to build long-term, profitable and harmonious relationships between occupiers and landlords.
