Has Hybrid Working Disrupted Commercial Property For Good?

Here, Caroline Jones, head of HM3 Legal’s Commercial Property team, shares her experience of how the shift to hybrid working is changing the sector, and how savvy landlords and tenants can adapt to succeed.

In 2019, less than 5 per cent of the UK’s workforce worked mainly from home - according to statistics from Cardiff University and the University of Southampton - but 2020 lockdowns caused a seismic shift.

Fast forward two years, and hybrid working is permanently embedded in many businesses. A recent ONS survey revealed 84 per cent of those who became home workers due to the pandemic plan to continue a hybrid working pattern.

This shift has had a profound impact on the commercial property industry and earlier fears of how to adapt have been replaced by a trend in seeking new opportunities through flexibility.

While some law firms might see preparing complex agreements as an opportunity to capitalise on fees, we recognise the value in finding a solution that works for all involved. We think it’s time to lift the fear and bust some commercial property taboos.

Let’s start by talking about the elephant in the room: the fear of flexibility.

Death of the office space?

While the hybrid working revolution means less bums on seats in city centre offices, it has shone a light on the communal office space trend.

This shift in the way businesses view and use their commercial space has had a profound impact on the tenant-landlord relationship.

Today, a tenant might value flexibility within the agreement for leasing commercial space. Flip the coin and a landlord’s priorities remain the same as before: financial security and asset protection. Does this create a power struggle?

Not necessarily. We believe it’s a myth that one group is at odds with the other. We have found that with change comes opportunity and the apparent power struggle can be turned into a win-win situation.

Seeking the silver bullet?

So, what’s the answer? Subletting has often been a taboo topic when it comes to commercial property discussions, but today we are seeing a huge spike in clients seeking ways to make spaces viable.

Traditionally, many commercial leases forbid subletting as it makes tenancy agreements complicated and much harder for landlords to enforce their rights.

Despite this, we have seen a 35 per cent increase year-on-year in subleasing enquiries. While it’s not something many landlords may have considered, it can benefit all if done right.

Busting the taboo

In today’s shifting commercial property landscape, we are changing the narrative.

While making sure clients are getting the best deal possible is just one of the many ways we’re helping, subletting is one solution where there’s a further opportunity to make a positive difference with the right advice.

“After a move to hybrid working, one Liverpool client no longer required the space they were leasing and wanted to exercise their break clause. We negotiated a deed of variation to their lease allowing our client to sublet part of their office space. It was a win-win scenario as the client didn’t need to break the lease – or pay the associated costs – and the landlord kept a good tenant.”

When the transaction is kept positive, all sides can benefit. Landlords secure the business of long-term tenants, and tenants have the flexibility to seek contributions to their overheads in exchange for sharing their workspace.

For some landlords, the idea of subletting will remain taboo, but it’s worth considering the consequences of not being flexible on this clause. Terminating a lease can cause real harm to both parties and should remain a last resort.

Putting flexible leases into practice

“We have recently started working with a commercial property investment landlord in urban Cheshire. Within the family company’s portfolio were several tenants in financial trouble post-pandemic.

“Our team supported them with a raft of measures such as negotiating the surrender of leases and allowing subletting. As the landlord client worked with the tenants to find a resolution, the tenant businesses continued to trade and there have been no void periods.”

To sublet or not to sublet?

With hybrid working now settling in as a permanent expectation, landlords and tenants must adapt to the new commercial property landscape to ensure the lights stay on for all.

Looking to downsize or sublet a commercial space? Would you like a specialist team to negotiate a new agreement or contract? Contact us on: rhb@law.uk.com.

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