Like many countries around the world, South Africa is resuming business activities and trying to balance economic needs with the all-important consideration of public health and well-being.
As businesses reopen – sometimes in fits and starts thanks to ever-changing government policy – the realities of our post-lockdown economy are being felt across the board. For owners and tenants, the challenges of adapting to an unpredictable business environment in a world that’s still in survival mode are immense – and commercial properties will need to adapt quickly in order to remain viable.
Open for business – but not as usual
Optimism is a great quality in any entrepreneur – but business owners who expected to turn back the clock and go back to work as before – after the lockdown ended, have found themselves having to re-strategise in a hurry.
- Cautious consumers, companies shifting rapidly to remote working, and commercial property tenants scrambling to pay their rent and renegotiate their lease agreements are all part of the new normal.
- The shift from bricks-and-mortar to online business is a boon for those in the eCommerce industry but traditional businesses – especially retail and office space tenants – are scrambling to cover their overheads.
- With the prediction of the pandemic’s total duration extending to early 2021 and beyond, the commercial property sector is facing headwinds that are not merely short-term and temporary in nature. Adapting to the COVID economy is essential for landlords and tenants alike.
What makes a successful post-lockdown office building?
Knowing that change is necessary is one thing – but making effective adjustments to a building’s layout, office space setup, and rental arrangements can definitely be a challenge.
Building owners and managers will need to take heed of tenant requirements – both today and in the foreseeable future – before they invest in changes to their premises in the wake of COVID-19.
- Flexibility is an asset. Clinging to the hope of fixed, long-term leases with guaranteed annual increases is a recipe for disappointment in the current economy. Tenants are actively seeking office spaces that are flexible in terms of the contracts they are expected to sign and the total floor space they have to commit to occupying during the course of their leases.
- Mixed-use is the future. A building, development, or area that features a mix of residential, commercial, retail and industrial units such as the modern and cosmopolitan city-within-a-city and mixed-use development at Century City, will always be attractive to the new wave of work-from-home professionals. This way of life appeals to many people and is likely to remain a feature of our business culture long after the pandemic is over.
- Repurposing may be essential. Some building owners are reluctant to renovate their premises or change their office layout at a time when cash flow is tight – especially if they recently acquired the commercial property and invested heavily in its current finishes. However, it may be necessary to see these expenses as sunk costs and move forward with repurposing part of the building to meet the needs of tenants and ensure rental income.
Is subletting becoming part of the new normal?
One alternative to totally rethinking and renovating an office building is to permit tenants to sublet their current premises.
While some owners have been reluctant to allow this in the past, it may be prudent to loosen up and take measures that will help tenants to make their rent payments on time and in full.
- Subletting essentially involves giving your tenant permission to rent out a portion of the premises to someone else. This allows them to generate income that can be used to pay the rent – but it also comes with a number of risks.
- Vetting potential sub-letters is essential. Commercial property tenants will need to run any potential sub-tenants by their landlords and ensure that the person or company is screened for suitability and affordability.
- Always avoid a culture clash. From a practical point of view, the business activities, philosophy and personal conduct of tenants and their sub-tenants will need to align to avoid conflict. Having a sublessee move out after a few months is disruptive and may place the main tenant in financial difficulties.
The post-lockdown business environment can be difficult to navigate – and flexibility, patience and goodwill are the order of the day. If you’re a tenant or property owner and would like to secure the best possible lease on a commercial property in Cape Town, contact us today.