Blog
So much of the real estate world has changed since 2020 that it may be unrecognizable from a decade ago. With businesses across the country taking major hits and investors feeling them in the aftermath, the real estate industry as a whole experienced a wake-up call. Unfortunately, our industry standards were not built for the type of disruptions experienced in 2020, and many businesses and investors suffered because of it. However, in 2022 we are seeing a “new normal” that is built not only to withstand catastrophe but to help both tenants and investors thrive.
The “new normal” in commercial real estate may feel foreign, but it will open up opportunities for you to reach new tenants and ensure profitability even in times of uncertainty.
Shortening Lease Terms
2020 woke many small businesses up to the uncertainty that lies within the national and global economy. In many cases, the lease agreements they signed years ago were not built for the kind of flexibility they needed during the pandemic, so at the time of renewal, many businesses looked for shorter agreements with more flexible renewals. Now, the average commercial lease is around five to six years, with three-year renewals in many cases.
Turnover Rent Models Increase Rapidly
Turnover rent models – calculated as a base rent plus a percentage of tenant turnover – are becoming increasingly popular post-COVID. These models offer incentives for investors to care for their tenants rather than simply collect checks from them. While not common prior to 2020, many tenants are pushing for some turnover element to be added to lease terms to ensure they have the resources to survive during economic downturns of the same magnitude.
Pandemic-Related Contingencies Written Into Leases
In addition to increasing turnover rent agreements, tenants are pushing for other types of contingencies in response to the pandemic. For example, many are asking for options to claim a certain amount of rent back per year or a 50/50 split liability during extreme circumstances. This helps to plan for uncertainty rather than have the power struggle many tenants and landlords faced when they were not prepared for such events.
Unprecedented Advancements in PropTech
While many changes to commercial real estate are made to prepare for the worst, many companies are also investing in future success with the explosion of property technology (PropTech). New channels for communications, operational tools, and investment platforms make purchasing, managing, renting, and selling investment properties easier.
Legacy Commercial Group is excited to embrace these new changes to our industry and help you implement them for better tenant retention now and in the future. We are here to help you embrace the new normal and make your commercial properties flourish.