Flexible Leasing Strategies of Tenants – Latest Trends
As a barometer of economic development, the office market always reflects the development of various industries. As an important component of the office market, corporate tenants raise new office requirements which will meet the latest development of their respective industry needs. Both are constantly evolving, interacting, and promoting the continuous evolution and development of the entire office market.
We at Changyi are committed to tracking the latest developments in the office market in an all-around way, exploring opportunities in the commercial real estate market, and always providing our clients with advice of the latest cutting-edge leasing strategies. Combined with the latest status and development trends of the office market in 2018, in addition to the traditional leasing strategies such as priority renewal rights, expansion rights, etc., we summarize the following flexible leasing strategies which reflect the latest market trends.
Strategic combination of leasing both core office and flexible office space
Co-working spaces continue to expand in many office buildings in major business cities including Shanghai. We suggest that corporate tenants adopt a leasing strategy that combines core office and flexible office space; in other words, tenants should sign long-term leases with office owners to accommodate core teams, while signing agreements with co-working spaces in the same building or nearby to accommodate flexible teams. This lease strategy is particularly suitable for fast-growing corporate tenants. By adopting such strategy, they can enhance the flexibility of the lease to strategically plan their expansion demands. This strategy is also very useful for project-oriented enterprise tenants, who have the flexibility to organize their short-term project teams’ workplaces.
Non-fixed office, multi-location office
We often meet many fitness enthusiasts who own an annual membership of a chain fitness center, which enables them to enter and use all the branches of the chain according to their own needs. This range can be within the borders of a city, the whole country or even the whole world, depending on the chain’s location range. Similarly, rapidly growing co-working communities leverage their expanding global network to provide co-working clients with the convenience of working in multiple locations.
When necessary, choose a shorter lease
2018 was a dramatic downturn for the Chinese stock market – one of the biggest reasons being the “trade war” between US and China. In 2018, although most landlords in Shanghai only accepted 3-year leases as new-letting deals, we met a lot of tenants in the financial sector who will only accept 1-year or 2-year lease terms. Short-term leases offer tenants more flexibility so they can always focus on their business goals and adjust their real estate plan according to the latest business strategies.
Select large developers and owners with several property projects to gain the flexibility of expansion and relocation
Large developers and property owners with more than two property projects usually can provide flexible arrangements for the relocation or expansion of their existing tenants. For example, in the office market of Shanghai Pudong, Lujiazui Group owns dozens of high-quality office buildings located in Lujiazui core financial district, Zhuyuan business district and Qiantan (The New Bund) business district. Another example is Hang Lung Group: besides its iconic Plaza 66 located on Nanjing west road in Shanghai, Hang Lung also owns high-quality shopping malls and office buildings or developing sites in Wuxi, Shenyang, Tianjin, Hangzhou, Kunming and other cities. For corporate tenants, if choosing to lease office from such large owners of office buildings, there shall be more flexibility when there is need to move or expand.
This article is written by our Shanghai partner, Tom Zhang, with the firm Changyi. Have questions or real estate needs in Shanghai or its surrounding areas? Contact Changyi.