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Reply To: We are looking to sign up a 3-5 year commercial lease in the next 4-6 weeks in Auckland. Due to the current environment we can see significant downward cost pressure on retail leases – what is the view on industrial? Will there be a softening due to reduced demand? Any thoughts or crystal balls out there? Much appreciated. Thanks

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Week one of alert level 3 has been very busy for my industrial agency team each conducting a number of viewings this week showing signs of the economy waking up. Salespeople are eternal optimists of course, but I do believe this is somewhat of a bounce effect from the pent up levels of enquiries over the alert level 4 lockdown. Using the trusty crystal ball, I think it would be optimistic to think the same activity levels in terms of tenant demand to continue over the coming weeks.

Chris’ comments above are excellent noting Industrial stock is definitely the star performer of the 3 main commercial property types (office and retail being the other two). Lloyd is right also, the e-commerce market is booming and the back end of that is underpinned by the industrial property to support the supply chain network associated with online shopping.

However, the market is more of a Tenant’s market right now kicked off by the rent concessions offered by many astute landlords realising they need to retain and support their tenants to meet their own financial commitments.
Lease incentives have not been prevalent pre-lockdown, but, we are already seeing rent holiday requests, reduced face rents, prior access clauses and shorter terms being offered to give tenants greater flexibility and financial support. The latter point would be a good one for you to think about when committing to a 3 – 5-year lease term. We are working with a number of businesses keen to get back up and running or expand based on the surge in online shopping activity, they are unsure how long this will continue and are asking potential landlords to work with them to offer an initial shorter-term trial phase, before then committing to a longer lease term once there is greater certainty around their particular market place.

As a business owner, the first thing businesses did at alert level 4 was review their financials and look at cost-cutting initiatives wherever possible. Rent is generally the 2nd highest business expense behind wages and salaries and it is already clear businesses are looking closely at optimising their existing space or look to cheaper rent offerings for like for like stock advertised in the market place. Make sure you do your homework on the rates available in the areas you are looking at leasing. Think about the initial term you are willing to commit to- Landlords are generally more amenable to incentivise you to make a longer-term commitment so there is upside to the 5 year term you discussed, I just want to play devil’s advocate with you to ensure you play your cards right.

Cheers!

blairjames@jamesgroup.co.nz