New trends and realities in the commercial property lease market

Research is showing that the high vacancy levels in commercial lease property in New Zealand is a trend that looks set to stay for the next couple of years.

Low interest rates, inflation and slow recovery from the global economic crisis will have an ongoing ripple effect on commercial property.

In the short term, this is leading to an increase in trends such as “shadow space” where a business simply vacates areas they no longer use or can afford. They shut down the air conditioning, power and lights, and use a smaller area. Most often they would like to sub-lease the space they don’t need, but with a glut of space on the market, it is hard to do.

Shadow space doesn’t show up in the vacancy statistics, so in reality there is an even higher level of vacant space on the market than that which is recorded.

We are witnessing a whole new paradigm in the way businesses thinking about the space they lease.

I’ve talked often in this blog about the trends towards tele-working, hot desking, and strategies to utilise work station spaces more efficiently. This trend is set to continue as the powerful connections between using less work space, saving on property costs, and increased productivity become realised.

Hewlett Packard recently announced a target of 90 percent utilisation of all work stations in their work places. Actual utilisation is a lot lower than this, often 35%, with people out of the office on business, away on leave or at meetings.

HP’s objective now is to pursue “less space, but better space”. Their view is that it’s not just about savings; it’s also about providing its people with better tools and spaces so they can perform better.

Based on significant research carried out in 2010 in the USA and Europe, we can confidently predict that reduced office space is going to become a way of life and more and more staff will work remotely.

So where does these leave businesses for the future?

Smarter businesses are completely rethinking the way they operate. Chris Hood of HP suggests that it’s not the recent downturn that has driven his organisation to rethink its space portfolio. He argues that their rationale is the desire to be more competitive, and a concern for the environment.

The survey showed those organisations that had developed “enabling technology” (like smart phones and laptops) and had forward-thinking attitudes to managing people and their performance were more likely to achieve a better workspace utilisation, reduce overhead costs and compete more effectively in a competitive marketplace.

Most organisations have implemented cost cutting exercises to minimise the impact of the recession. Some have even used the current financial environment as an opportunity to rethink their work practices, business structures and property portfolios. Of those, a few will come out the other side stronger, more profitable, and with people who are performing more effectively in a technology supportive workplace environment.

The choice of how we deal with the current financial pressures will determine what our organisations evolve into.