What is most valuable to owners of an office building? Tenants. The valuation of any property is based on rental income, which also impacts its resale value. A property without tenants ceases to be attractive to potential buyers. Empty offices do not generate profit, they generate fixed costs. And finding new tenants is usually a lengthy process with additional marketing and investment costs.

For tenants, in turn, relocation can be challenging: both at the organisational level and for individual employees for whom a new office address means having to change their habits and daily routines. Therefore, if there are no tangible benefits associated with the change of location, it is usually more comfortable and safer for the tenant to remain in the existing premises after the lease expires. However, landlords need to realise that tenants' expectations are different today than they were a few years ago. Adapting to tenants’ needs becomes a necessary condition for getting them to stay and renew their lease.

Good news for both parties is that the share of renegotiations, or renegotiations of lease contracts in existing premises, has been increasing in the office market in recent years; especially in Prague. The reasons for this include the limited supply of new buildings, the perception of renegotiation as a safe and cost-effective solution, lengthening lease durations (which are sometimes too binding for many companies) and, last but not least, the rising cost of office equipment.

"We recommend starting negotiations on lease extension up to 2 years before the lease expires," advises Radana Williamsová, senior office consultant at Colliers, adding that a landlord who waits until the last minute to make an offer is taking a big risk. By then, tenants are already familiar with competing offers and may be tempted by the prospect of new and more modern spaces. Any problems in the existing space are then magnified. Unless the tenant is presented with options for how address problem issues, they will likely be prepared to take the risks associated with moving.

What does the tenant expect?

The introduction of the hybrid working model has led many companies to optimise their offices and redefine their functional and working zones, i.e., to modify interiors, reduce the number of workstations or add new meeting rooms.

There is also growing interest in furnishing buildings and their immediate surroundings. Until recently, the attitude of renters towards offices located, for example, in multi-purpose complexes in revitalised buildings was ambivalent. Cafés and shops were seen as a threat to employee productivity. But today, the better the amenities the building and its immediate surroundings offer, the more attractive the location is.

"Tenants, i.e., users of the offices and common areas, should also be consulted about the modernisation and fit-out of the building, as it is in the landlord's interest to build and cultivate their image as a committed partner who takes a long-term view toward cooperation," says Radana Williams. Do tenants need more bike racks and showers for cyclists? Do they want a more presentable lobby? Greenery around the building? A laundry room or perhaps a package vending machine? There is no clear answer to this and it depends on the individual preferences of building users. The landlord should ask all these questions.

The way the owner (landlord) communicates with the tenant is also important. Discussions must be clear and understandable, even in technical matters. The tenant will likely be inexperienced in reading architectural drawings. Visualisations or virtual tours of the building are much more accessible and allow the tenant to easily understand any changes to their premises.

Leases and ESG

Over the past five years, tenant expectations have also increased in the area of ESG. This aspect needs to be taken into account when renegotiating a lease. Keeping alterations to a minimum and leaving furniture or other pieces of equipment (that are still functional) in place is undoubtedly more financially advantageous and also gives the tenant the opportunity to demonstrate their concern for the environment.

This does not, of course, absolve the landlord of the obligation to raise building standards and gradually introduce new sustainable solutions. For example, emphasis can be placed on promoting sustainable transport in the form of chargers for electric cars or facilities for cyclists. Or the owner can offer a system to facilitate data collection for ESG reports or solutions to reduce water consumption or manage storm water drain-off and storage. Office design can involve use of materials with a low carbon footprints, non-toxic adhesives, recycled materials used in the interior, and so on. In recent years, requirements have changed a lot, and the ESG appendices to leases required by tenants may contain many new provisions.

Positive attitude

In every negotiation, there are issues on which compromise is difficult to find. The landlord should know the tenant's needs, try to meet them within the available budget, and present the proposal to the tenant in an attractive way. This often requires the support of a competent, experienced adviser and the start of negotiations well in advance. The tenant should be given the feeling that they will profit by staying. Comparisons with brand new offices in a new location should not be negative for the current owner or landlord.