The final days of the long-term commercial lease

How office landlords can compete for small business tenants

You might recall several weeks ago that we talked about the shift in office lettings – in Ireland and globally – towards a more flexible offering typically seen in co-working arrangements. Some of the challenges for landlords in adapting to meet this shift directly rather than through specialist co-working providers, apart from the obvious uncertainty of tenure, include a more labour-intensive or hands-on role to be played and, most significantly, getting your lender on board with this new way of doing business. On paper, these flexible arrangements appear to offer a lesser degree of certainty, however, in practice, they can be more certain and more profitable as the margins increase alongside the standard of the premises and the quality of services offered. The challenges are real but so too are the potential opportunities for landlords who are in a position to respond.

Just to put the scale of this opportunity into context, in 2017 8% of all office leasing in Dublin was for co-working space and this figure is set to multiply by the end of 2018. It is estimated that 30% of the office market globally could be flexible space by 2030 so this is more than a mere trend and cannot be ignored by landlords or their lenders.

Brett Miller, the man who has grown JLL Canada’s employee base ten-fold and who is responsible for the 1,000% revenue increase since he took over as CEO in 2012 shared this insight in a recent Bloomberg interview:

“We’re into the final days of the concept of the long-term commercial lease,” which “very much suits the landlords, because who wouldn’t want their tenant to be locked in for 10 years?” he said. “All of our large occupiers are now saying, how can we have an element of flexibility?”

At this juncture, it appears that commercial landlords have two options, either compete for a co-working provider tenant – which is only realistic of you have large space available – or try to deliver greater flexibility and a wider range of services to individual businesses. Competing with co-working providers for small business tenants can certainly be done but only if the office landlord has taken the time to understand what they are competing with – start by visiting some of the hot-spots in Dublin to see what tenants are being offered already. Co-working is great for single person businesses but once a business grows to three and four people, there is a greater need for privacy – open offices don’t provide this and the private suites in co-working spaces are relatively expensive. Perhaps this is the offering to start with, affordable private offices for small businesses within a larger building. Also, don’t jump straight into long leases. If possible, start with a one-year arrangement with a break option. Consider employing someone on-site to administer the building full-time, it will make financial sense in the longer term. Include an overall package i.e. rent to include rates, insurance, weekly cleaning, waste disposal, quality canteen facilities to encourage inter-business networking and community building, internet and phone lines. Access to reception services and communal meeting rooms will depend upon your building and resources. Sounds easy, right?

Ian Lawlor
086 3625482

Director / Business Development
Lotus Investment Group