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Why Brexit means better deals for occupiers

“London is not going to fall off a cliff”. This was how Tony Charles, Morgan Stanley’s real estate research chief provided a sense of perspective on the capital’s commercial property market at the end of July. Prices haven’t collapsed – but things have changed – and by and large, landlords are in a weaker bargaining position than they were before the Brexit vote.

So how should occupiers seeking to negotiate a new lease approach the market? We take a look at how prospective tenants could take advantage of a post-Brexit bonus…

Tapping into a better deal: look beyond the top-line price

According to the Royal Institute of Chartered Surveyors (RICS), although occupier demand fell slightly immediately after Brexit, prices (on the face of it, at least) have remained stable. The reason is simple: demand for the time being continues to outstrip supply.

If you were to compare lease prices pre and post-referendum, you are unlikely to notice an appreciable difference. But this fails to give the full picture. To access a great deal, it’s important to look beyond the headline rent. Landlords anxious to maintain occupancy rates in an uncertain climate won’t necessarily slash their advertised prices. They are likely, however, look more favourably at the wish lists of occupiers when it comes to negotiating a lease.

Negotiating post-Brexit: spotting opportunities for savings

Right now, it’s through the process of negotiation that occupiers are most likely to tap into the benefits of Brexit. Areas to focus on may include the following:

  • A longer rent free period. One concern for landlords is the possibility of being left with unoccupied properties – and by extension, increased business rates liabilities. In a climate of uncertainty, landlords are likely to be more keen than ever to get tenants into occupation. This raises the potential for longer-than-advertised rent free periods.
  • Exit breaks. Does a fixed 5-year lease seem like too big a commitment in the current climate? You may find that landlords are now far more amenable to the insertion of annual break clauses into the contract. With such a clause, you have the option of bringing the arrangement to an end at fixed intervals (usually on each anniversary of the term commencement), so you are not locked in for the duration should your circumstances change.
  • Alterations prior to commencement of the lease. Will certain modifications be required to make the premises suitable for your proposed use? There may be greater scope for negotiating for the landlord to pay for at least part of this work. Similarly, it could also be possible to limit part of your repairing obligations under the lease.

How to find and secure the best post-Brexit deals

It’s a matter of looking deeper, looking wider – and knowing how to go about securing an optimum outcome. The deals are out there – but securing them without impartial, expert help will be a huge challenge.

In May of this year, Deloitte reported that central London office construction had doubled in the space of 18 months to over 14 million sq ft. As these projects work their way through the pipeline, occupiers can look forward to greater choice and diversity. As Miles Gibson, head of UK research at CBRE put it in July, “The capital is open for business, and remains an attractive proposition for occupiers seeking to locate in a world leading global city”.

Not only is London open for business, the signs are that the market is shifting in favour of occupiers.

For transparent advice on all aspects of your commercial property strategy, from an agency that only acts for occupiers, speak to DeVono Cresa today on 020 7096 9911.