In commercial real estate, landlords and tenants across the state have had to work together to get through the past year. Now they’re renegotiating how to work together in the future.
Over the past year, COVID-19 restrictions have cut into revenues for stores and restaurants.
Those businesses and their landlords have worked out a variety of ways to cope, knowing that paying the rent was going to be tough.
Now, according to commercial real estate brokers Pacific Business News spoke with, the COVID-19 experience is transforming the terms of commercial leases being signed or renewed right now.
Those changes are all attempts to answer “What if” questions.
What if this doesn’t end soon? What if it happens again?
Jessika Fodor, principal broker of JFodor & Co., says some leases are being negotiated with percentage triggers, so that if business falls off, so will lease payments.
For hotels, those triggers are tied to occupancy rather than revenue. Fodor says this arrangement has been a part of every conversation she’s had lately.
Other brokers at our roundtable say they’ve seen the same changes in industrial and office leases.
Office tenants specifically are looking for protection if, for reasons they can’t control, they’re unable to actually use the space they’re leasing.
Force majeure clauses are being amended in some commercial leases to specify pandemics as the kind of “act of God” event that would allow a tenant to walk away from the lease entirely.
Even little details have become big deals.
Wendell Brooks III, executive vice president and Hawaii broker lead at Jones Lang LaSalle (JLL), says that nice-to-have amenities like dedicated parking spaces for customer pick-up, are becoming mandatory.