Occupier power, how to deal with it

Put a handful of landlords in a room together with some occupiers and watch what happens. The outcome is likely to be a surprising amount of cordiality and good will. But dig deeper and cracks become apparent on both sides. Landlords complain that occupiers don’t know what they want. Occupiers retort they are not happy with their fit-outs. Is this disconnect down to poor communication? The physical and costly nature of real estate and the time between decision and completion? Or does it reflect the competitive nature of landlord-tenant relationships?

Our Offices 2020* study shows that the pendulum is firmly swinging towards occupiers over the next few years. A straw poll at one of our events indicated 80% of clients expected occupiers to become more powerful – ahead of cyclical factors such as the economy. Property is becoming more important for occupiers, who increasingly see it as a key strategic part of their business − some occupiers are already employing real estate executives in very senior positions and property is being recognised as a tool for recruitment and retention, and branding.

What can landlords do to address this rising negotiating power? The answer lies in focusing on ongoing partnerships. Funding for office development is unlikely to return to pre-2007 volumes of debt, so inventive collaborations with corporate clients will be required to fill the gap. Occupiers will control a greater degree of the development pipeline going forward.

However, being a good relationship manager is not enough. To succeed, developers have to become more flexible within their portfolios and pass this onto their clients. They should know what’s core and what’s secondary to their clients’ businesses and geographies. They also need to adapt their business strategy and prepare for the changes coming over the next 10 years.

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*[Offices 2020 is an ongoing thought-leadership initiative from Jones Lang LaSalle looking at the next 10 years of the office real estate industry across Europe, the Middle East and Africa]