Office lease due to expire? Here's how to plan for the future

Few companies have any idea what kind of space they’re going to need next year, let alone five or 10 years hence. No one knows whether employees are going to be working more often at home, or returning to the office, and with such a shaky economic outlook, it’s the toughest question of all.

“What do you do?” asks Cameron Williams, the managing director of office leasing Australia at Colliers. “Aside from panicking, you mean?

“Typically, most will go through a utilisation study, looking at who’s occupying desks and meeting rooms, and work out when the peak days are and what kind of arrangements they want to set with agile or hybrid working.

“There will also be a business plan and finance will look at growth plans and start there with the analytics.”

The major problem is that, while there are a lot of discussions about the future of work, conditions could change rapidly. At the moment, the unemployment rate is still low, at 3.5 per cent, but if it goes up, will that affect the space businesses will need?

Mark Curtain, CBRE’s head of office leasing, Pacific, feels sure it will.

“No one knows where the final destination will be for the workforce,” he says. “When unemployment grows, people are more likely to come into the office more often. So, suddenly, if everyone comes in 80 per cent of the time, you’ll need more space.

“Flexibility is here to stay, as we all recognise the need for more flexibility in our work-life balance, but I think there will be more structure and accountability in the future, especially in places where people decide on a whim to stay at home, or come in, that day. That will take a few more years to come to fruition.”

As a result, companies should consider signing leases that contain a degree of flexibility about office space, advises Josh Tebb, senior director and head of metro office leasing in Victoria at JLL.

“They should have built in the potential for a reduction or expansion of space, or they should look for shorter-term leases,” he says.

“A lot of landlords now are proactively managing their portfolios and are asking people if they want to hand back space, or have more. They’re very keen to accommodate this for their tenants, and there are now some strong deals in the market because landlords and new developers are competitive about winning them.”

Third spaces are also becoming more and more popular within leases, says Al Dunlop, partner and head of NSW office leasing at Knight Frank.

That could mean extra space in a head office that branches can also have access to, or communal spaces in buildings that everyone can use.

“Co-working companies have always been ready to take outside bookings for areas like meeting rooms,” Dunlop says. “So it’s important to offer these kinds of facilities for everyone.”

While a number of companies approaching the end of their leases are currently renegotiating for more flexibility, it’s often not about taking less space, either.

“Some are asking if they can get away with less, but most, in general, need more meeting and collaborative spaces, instead of old desk space,” Dunlop says. “The reality isn’t always about reducing the volume of space, but just using it in different ways. The fit-out is also important, and people are asking whether it’s fit for purpose.

“Refits can be very disruptive for a business staying in situ, and we’re seeing a lot of relocations in many areas – up to 50 per cent in some cases.”

With a vacancy rate now of 11 per cent in the Sydney CBD – compared to closer to 3 per cent before COVID-19 – that also means landlords are a great deal more obliging, all wanting to woo companies on the move.

One of the biggest trends now is the flight to quality, so some businesses are taking the imminent end of their leases as an opportunity to upgrade.

They might take less space, say 700 square metres instead of 1000 square metres, but it’s not a money-saving exercise, Tebb points out.

“They might even end up paying more for it, but it’s important in this climate to attract, and retain, good staff,” he says. “A-grade space is very popular.”

That kind of move also offers businesses the potential to shift their workplace culture, Williams suggests.

“Sometimes that’s a very good thing and could give them a competitive edge over their rivals,” he says. “But it’s important in these kinds of situations to make the decisions about what to do as early as possible.”