September 26, 2020

6 Strategies to Make A Long-Term Real Estate Decision in an Uncertain Market

When making decisions regarding real estate, companies ask questions like: How many people do we need to accommodate? How much space do we need? How should that space be configured? What if we need less or more space in the future?

What if their predictions are wrong?

Michael Griffin, Transwestern

In an ever-changing world—demonstrated by the rapid adjustments brought on by COVID-19—companies should start with the mindset that, to some degree, they are going to get something wrong. It may sound crazy, but no business can reasonably predict precisely what its space needs are going to be in 2024 or beyond. However, with this foreknowledge—and a savvy real estate advisor—risks can be minimized.

Here are some tools and strategies that may help solve the real estate riddle:

  1. Concerned about leasing too much office space? If so, design the physical space with an eye toward how one can easily downsize the suite with minimal effort and maximum market desirability for a future subtenant. Also, negotiate liberal sublease rights in the lease.
  2. Negotiate ways to terminate the lease early. This allows the tenant to get the most landlord-provided money to outfit the new suite while ensuring the right to end the agreement early if needed.
  3. Consider designing by the 80/20 rule, where 80 percent of the space is dedicated to needs that are unlikely to change, such as reception, IT, break rooms, and some offices. Then, flexibly design the remaining 20 percent. For example, partitions like a divider wall system can be modified quickly to accommodate a future space need.
  4. Match the lease term commitment to dovetail with a reasonable expectation for when space needs might change, plus 18 to 24 months. This approach helps prevent overcommitting to a lease. While many landlords prefer long-term leases, it would be unwise to commit to a 10-year lease term when you can only see three years out as far as space needs.
  5. Make your office work hard for the company. Each space in the suite should have multiple uses to allow for downsizing if necessary, such as a reception area that also serves as a meeting place for a shared work environment.
  6. Consider taking less office space to accommodate the same number of employees. Given the recent shift to working from home, some employees may choose to continue remote work for part of the week. If that is the case, introduce shared work environments with a CDC-approved cleaning protocol as opposed to offering everyone a dedicated workspace.

The concept that business and real estate needs are going to change has always been present. COVID-19 has amplified and accelerated that evolution. While it’s clear that no one can predict the future, it is possible to make educated decisions regarding real estate. When making long-term decisions, take the time to thoughtfully consider every factor and implement these strategies with the help of a tenant advisory specialist.

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