What should you do about secondary stock vacancy? James Montague

Brisbane’s commercial market is currently experiencing vacancy in secondary stock, which raises the question of what landlords should be doing to tenant this space? It’s an interesting area.

There have been a series of secondary assets within the Brisbane market that have recently undergone refurbishment in the race for tenant engagement. These landlords have focussed on the inspection journey and prioritized capital expenditure within building common areas (ground floor lobby, and on floor lobby finishes), providing quality tenant amenity and ensuring the tenancy itself presents in its best light.

If a tenancy stands out as the ‘best in class’ in the eyes of a prospective occupier, it will likely make the shortlist. That is ultimately the goal.

However, if there is simply not an appetite to expend large amounts of capital within the common areas, the use of feature carpet/tiling/alternative floor coverings, non-traditional or custom lighting and clean modern finishes throughout the specific vacancies is very important. Simply, a freshly painted tenancy will always inspect better than an old second hand fitout.

Using another approach - a number of landlords have completed speculative fitouts within vacancies that have resulted in successful outcomes. Whilst this presents some risk (we are often asked, “what if the tenant doesn’t like the fitout and wants it removed altogether”) the construction of a speculative fitout, particularly in those tenancies with quirky attributes, can often hide the negative aspects of a space with a fresh new presentation.

‘Speed to market’ can also be leveraged when a fitout is immediately available. Quite often smaller groups do not think about their accommodation needs until three to six months out from lease expiry, leaving little time to find the right tenancy and construct a fitout. Recently the Seymour Group built a good quality speculative fitout within a 210 square metre suite in 300 Queen Street. On completion of the fitout works the tenancy had been leased to a consulting business. The tenant that ultimately took the space had tight time constraints and required a space that was ready to occupy.

Flexibility and willingness to accommodate out-of-the-box tenant requirements are in my view the two most important factors in securing a prospective tenant. Some of the more recent transactions within the secondary market have incorporated access periods and delayed lease commencements to enable incoming tenants the ability to facilitate a relocation without double rent exposure. Landlords project-managing the fitout process on a tenant’s behalf (so a tenant is able to move in to a fully fitted tenancy), relocating existing furniture within the building for the incoming tenant at no cost, or even creating a bicycle cage in the basement are all things that have been recently accommodated to secure a deal.

In wrapping up, it’s clear to me that taking a stubborn view on what your building is worth without assessing the market can be detrimental. Listening to the market, understanding the drivers of each specific tenant and being nimble in your dealings are paramount aspects of any leasing campaign, particularly while demand is soft.

The speed of actioning deliverables is also critical. Once a tenant has signed a heads of agreement it does not mean the deal is absolutely final - quickly turning around formal documentation, actioning landlord works items and working with the tenant to “cross the T’s and dot the I’s” should be the immediate focus to limit any potential hiccups along the way.


James Montague is the director of office leasing, Queensland with Jones Lang LaSalle

 

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