Office space downsizing by corporates leave owners alarmed
One struggling tenant is a pain. All struggling tenants are a disaster. This has now become truer for more commercial/retail space owners who are trying to keep their head above the water.
The coronavirus pandemic which has literally messed the economy has seen ‘downsizing’ becoming the new mantra for corporates. With the country’s strict labour laws, the property portfolios look like good places for them to start shedding excess over-spending and exercise prudence.
In the Lanka Property Web site there’s 5.5 million square feet (sqft) of office space listed for rent in all grades (A, B, C etc) and 2.9 million shop/retail space available (all grades). This was calculated by the listed adverts. This clearly shows that many places are available for rent.
Research Intelligence Unit (RIU) has said the retail/office space in Colombo is now at 1.9 million sqft. Global real estate consulting entity, Jones Lang LaSalle (JLL) has said that there was 1.5 million sqft in 2018.
So there hasn’t exactly been a ‘lapping’ up of commercial space, pre-pandemic, property analysts point out. What is worse is that in addition to being forced to downsize their businesses, some – especially tech companies – are endorsing remote set-ups, given the ease with which their staff has adapted to working from home.
Specialty brands and designer retailers are just some of the targets this year, as irregular consumer demand and rising pressure from e-commerce have forced some to re-imagine brick-and-mortar stores. “There’s never been a fall of this level of retail traffic, and retailers have very little capacity to balance that level of sales decline,” a commercial space owner told the Business Times.
As a result many such tenants are seeking rent abatement from landlords. Some owners noted that existing tenants and potential ones are trying to downsize the properties they are already in or are requesting for lesser prices.
Joshua Christopher, Joint Managing Director, Access Group and Director Access Realties (Pvt) Ltd, told the Business Times that the notion tenants are negotiating rates is partially true. “The tenants’ expansion plans are on hold. They are optimising and re-using their space.”
Inevitably there will be a reduction in occupier demand, though it will vary from sector to sector, he said. The worst-affected tourism and leisure industries will need less corporate space, while some professional services firms may be able to continue as normal with altered working practices.
Some commercial space owners told the Business Times that they are getting a lot of interest from potential tenants. Dr. Saroshi Dubash, Director of Abans Group operating the Colombo City Centre (which is a partnership between Abans Group of Companies and the Singaporean-based NEXT Story Group) noted that 85 per cent of their office space has been rented out and they will soon fill the rest.