Arrivals and Departures. The refrain of an old song stated that “arriving and leaving are two sides of the same coin.” This sentence perhaps applies to those who are traveling. For the corporate world, however, it’s not quite like that.
Companies change region, address, or building for different reasons: growth of their operations, mergers, acquisitions, downsizing, among others.
In this movement, there are different expectations, positive or negative. One landlord will have the property vacant—meaning expense instead of revenue; the second landlord will have the good news of a new lease.
The tenant, in turn, will be focused on moving to the new office, certainly with the expectation of a new space, planned especially to meet their occupancy plan.
This moment of contract termination and consequent return of the space usually brings with it great tension.
For the tenant company, this occurs due to the cost and time required to return the property in the agreed-upon condition. Generally, in the original condition of delivery, without the modified installations from when the property was occupied. In this sense, the recomposition of the physical space is quite challenging, as some adaptations are particularly complex.
As for the landlord, in addition to having their property vacated, they need to ensure that all contractual obligations have been fulfilled by the tenant before the termination of this commercial relationship. It is worth noting that, after agreeing to the return of the property, the parties are released from any obligations related to the terminated contract.
For many years we witnessed, with some perplexity, first-rate facilities being completely destroyed at a considerable cost to tenants who migrated to new offices.
This was due to the requirement—expressly stated in the contract—of returning the property in its “original condition.”
Paradoxically, developments that were very rigorous in the construction of spaces, with a series of requirements aimed at aligning with certifications that advocate for environmental preservation, had no scruples about destroying facilities that could be reused by a potential new tenant. This resulted in double costs and a double impact on the environment, due to the removal of the improvements and the subsequent new construction by the new tenant.
Expectations of landlords and tenants
In my years of experience at Ocupantes, I must emphasize that we have always been successful in many projects involving new tenants for existing commercial spaces.
This has resulted in cost reductions, both for the new tenant and the company relocating. In several deals, we have eliminated the costs of returning the space to its original condition, significantly reducing the CAPEX for installation.
However, these have always been quite challenging projects that demanded great dedication from the team in charge of each project.
The success of these negotiations depended on finding an operation that could function with minimal intervention in the property being returned; it was, therefore, a race against time, because from the landlord’s point of view, replacing the property along with terminating the contract was essential.
This would occur because, from that moment on, the relationship between the parties was terminated and mutual obligations ceased.
The market observed a watershed moment in the post-pandemic period, with the end of remote work. Previously, the rule regarding the return of an office was completely inflexible—return in its original condition. Currently, however, tenants prefer ready-to-use spaces in order to reduce setup costs.
This makes an office delivered in good condition a differentiating factor that can accelerate a new lease.
Arrivals and Departures: New Times, New Trends
Currently, good facilities have become an attractive feature for new tenants. With this trend, landlords have revised the concept of “return in original delivery condition,” which is still commonly included in lease agreements. They are now accepting ready-to-use spaces.
There are also landlords who have pointed to a new trend: investing speculatively to deliver ready-to-use spaces in order to attract new tenants, or even financing the construction of new offices.
In this scenario of changes and opportunities, we observe that the corporate office market has evolved, making the conditions for returning spaces more flexible, generating double savings from demolition and reconstruction of facilities. Furthermore, it continues to reduce the “stress” inherent in nature itself, which ultimately provides the raw materials used.
Finally, some owners and even companies developing new office projects have been offering ready-to-use spaces, spreading the CAPEX over the lease term, attracting new tenants and making the market more rational and functional.
