Office partnerships tackling hybrid work, net zero goals

Office landlords and tenants are teaming up to take on complex issues facing businesses

May 11, 2023

Accommodating the peaks and troughs of office attendance in hybrid workplaces is an ongoing challenge for business leaders. Another is meeting environmental, social and governance demands.

Increasingly, landlords and tenants are working to address the two together.

Tenants and landlords are now exploring more efficient ways to manage new office usage patterns, including flexible lease terms, in a more collaborative approach to two of the most pressing issues for many businesses.

“We have seen a lot of change in the past 18 months, with landlords and tenants asking about ways they can work together,” said Michael Greene, head of tenant representation in Australia, for JLL.

“Tenants are saying, ‘We have made a commitment to the environment, what does this mean when I now sign a lease?’ A net zero commitment means a tenant must occupy an environmentally friendly building, ideally a net zero, to meet their target. The reality is not many of these exist.”

Greene was among specialists examining the road ahead for workplaces at the Future of Office Space Summit, held in Sydney, Australia in March.

He was joined by Kate Pilgrim, market engagement manager at office landlord Charter Hall, and Gwendy Arnot, general manager of workplace services at insurer Allianz.

Currently, tenants expect buildings to be fully operational from 7am to 7pm, every day of the week, with expectations of fully-functioning utilities like lighting and air-conditioning. But this may be outdated when looking at the changing nature of business hours and hybrid work, the speakers agreed.

“If people are coming to the office only three or two days in the middle of the week, how do we work with the landlords to reduce energy consumption (on the remaining days)?” Arnot at Allianz said. “And on some days, floors are completely empty. Questions are now being asked about how do we turn a floor off completely?” 

A partnership approach

Pilgrim raised the importance of strategic partnerships between tenants and landlords to combat rising energy costs and deliver on sustainability initiatives.

“Conversations need to be had with companies and governments about building operation hours,” she said. “It’s an education process. As a landlord, going out and having conversations with clients increases partnership opportunities.”

Another concern discussed was minimising the time it takes to negotiate leases, with the aim of reducing disagreements between tenant and landlord later. Increased governance requirements mean that tenants need to cover a range of issues in leases, such as modern anti-slavery, potentially increasing the number of issues to be resolved.

“Hard negotiations should be had early,” Arnot said. “Leases could be finalised in a matter of weeks as all the conversations have already been had, down to the clauses negotiated and written.”

Greater flexibility required

Contracts that put a lot of obligations on a landlord and tenant, and that technically can’t be changed, are a bugbear, the panellists agreed.

One suggested solution was establishing a management committee between the two parties to be able change the operating parameters of buildings with greater flexibility, Greene at JLL said.

“A tenant may want air conditioning on in the building from 7am to 7pm, but that's going to wreak havoc with a landlord’s environmental commitments to reduce energy,” he said. “In summer, everyone is coming in at 7am and leaving at 5pm. We can pull the air-conditioning back to 6pm instead of 7pm. In winter we’ll shut floors down… the lease should have a mechanism that allows that to happen between landlord and tenant.”

Arnot said: “Unless landlord and tenant can understand we have to be flexible and alter leases as appropriate when things change, we’re always going to be behind the ball. There needs to be a deep relationship of confidence and trust because you are in a lease for a very long time.”

Contact Michael Greene

Head of tenant representation, Australia, JLL

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