Covid has forced many companies to the negotiating table with their landlords to address what some now deem to be expensive, overly long leases. Even for the few that are still committing to physical expansion, it is under markedly different terms.
With no accepted guidelines in place, each negotiation is a delicate balance of conflicting needs and circumstances.
Tenants in the retail sector are seeking rent concessions and abatements in their existing leases, and pushing for more flexible lease terms including turnover-based agreements.
With so much to weigh up, scenario testing technology, such as Altus Group’s ARGUS Enterprise solution, has come to the fore. The platform has enabled asset managers to simultaneously run multiple assumptions or risk factors against their assets or portfolios to rapidly gain oversight of a range of potential outcomes.
Landlords can test a range of scenarios in a matter of minutes, looking at things such as rent proposals, lease expirations, tenants’ revenue streams and the overall impact on the asset’s performance. This process is not only enabling them to develop a more informed and viable negotiating strategy but also acts as a means of demonstrating to lenders that they are achieving the best possible deal.
The British Property Federation estimates that commercial property investors could see pandemic-related rent arrears reach up to £7bn. Far from resulting in a wave of evictions, the BPF anticipates that property owners will seek to avoid the risk of empty buildings and zero income.
What we are more likely to see instead is greater compromise, with technology playing a key role in finding financial solutions that benefit all parties. Data analytics enables better analysis of tenant types to ascertain which ones are more likely to struggle or recover. This should make landlords and lenders more accepting of rent repayment terms, performance-based leasing structures and shorter-term lease agreements.
Scott Cations is vice-president of Altus Group