The changing landscape of commercial tenancy

By Logan Grisaffe and Jess Scanlon

Commercial tenants have become more particular about their brick-and-mortar location due to increased competition, rising costs, and changing consumer needs and expectations. Consequently, landlords who can provide more value and flexibility are likely to be more successful in attracting and retaining tenants in today’s commercial market.

Here are some ways in which commercial tenancy needs are changing:

Food sector – With the rise of food delivery services such as Menulog, Uber Eats, Doordash and more, the importance of location has shifted for restaurants. In the past, restaurants would prioritise locations with high foot traffic & visibility to attract customers. Now, restaurants can operate from less visible locations as long as they are within 50 metres of a carpark to keep drivers happy.  Increased food delivery services results in less demand for physical restaurant space too. 

Office sector –   Since COVID companies are now rethinking their office space requirements and may require smaller or more flexible spaces that can adapt to their changing needs. This could mean short-term leases, co-working spaces, or spaces that can be easily reconfigured. Additionally, many businesses are adopting hybrid work models, where employees work remotely some days and in the office others, so factors such as accessibility to transportation and amenities are still important. 

Retail sector – Although location is still crucial for high-end retailers on the Lower North Shore, specific fit out requirements are changing. For example, the rise of e-commerce has led to brick-and-mortar stores now using their physical spaces in new ways, such as offering experiential retail or using their stores as distribution centres.  

Services sector – With services such as medical, physio and dental it’s still all about location. Although their fundamental needs haven’t changed, they now expect to walk into their property fully configured and fit out with a greater contribution from the landlord. 

With high vacancy rates and more stock, the reality is tenants have options and can be more particular.  Commercial tenants across all industries are now putting the onus on the landlord to have the property ready.  If the potential tenant is not satisfied with the state of the property, they will not hesitate to ask the landlord to rectify their concerns or upgrade the existing site.  In fact, whether it is the food, services, retail, or office industry, commercial tenants are expecting the landlord to put forward more capital to ensure that property is more suited to the tenant’s fit out plans.  And if the landlord won’t meet their needs, they simply move on to the next building on offer.  As a result, landlords must offer more competitive terms and amenities to attract and retain tenants.

Today’s commercial tenants are well educated.  They have researched the market and they know what’s available, what’s on offer and what properties aren’t moving.  In the current market where landlords are unwilling to be flexible with price or incentive, they are not successfully tenanting their properties, tenants can demand more and keep expenses down.  Where in the past commercial leasing has been somewhat transactional, now agents are required to understand the changing needs of tenants to find and successfully lease a suitable property.