THE OFFICE VACANCY SOLUTION

Just throwing out an idea…

I was once told that during the Asian Financial Crisis, some office landlords offered extremely long rent-free periods—possibly as much as one year—just to get their vacant units leased.

At first, that sounds desperate.

But when you think about it, it may actually solve one of the biggest problems in the office-leasing market.

Many office units are delivered as bare shells. The tenant still has to design and construct the interiors, install the fan-coil units and ductwork, complete the electrical and plumbing works, and secure all the necessary building and government approvals.

Landlords typically provide a rent-free fit-out period, often around three months. But anyone who has gone through an office fit-out knows that three months can disappear quickly. Permits and approvals alone can consume that whole period.

Depending on the project, fitting out a bare office can take six months—or even longer.

This is also why companies looking to expand often prefer fitted offices. They want a space they can occupy quickly without spending months—and millions of pesos—on construction.

The problem is that good fitted offices are difficult to find. Many of the available ones are already old, worn out, or designed for the previous tenant’s very specific needs.

So perhaps landlords with long-vacant bare units should stop thinking only in terms of lowering the monthly rent.

What if the better incentive is time?

Instead of offering the usual three-month fit-out period, offer one year rent-free in exchange for a sufficiently long lease commitment.

The landlord may earn little or nothing during the first year, but the unit is already vacant anyway. A tenant can also take over association dues and certain operating expenses if the lease is structured that way.

More importantly, the landlord secures occupancy and future rental income instead of continuing to carry a vacant asset indefinitely.

If your office unit has been vacant for more than a year—and it has not sold either—perhaps the answer is not another small price reduction.

Perhaps the answer is to make it much easier for a tenant to move in.