Leasing ground floor spaces of office buildings to retailers may help to retain core office tenants, even if it is done at a depressed price.
Restaurants, café, grocery stores and fitness centres are good choices – says commercial real-estate company Newmark VLK Hungary after summarizing its experiences of the past year.
Newmark VLK Hungary survey results have shown that in today’s environment, which is defined by the home office, there is an even stronger dependence between landlords and ground-floor tenants than before. Companies leasing office spaces want to lure their employees back to the workplaces, however, it is no longer enough to provide almost „hotel-level” offices; they also need locally available wide range of services.
” Landlords need tenants, and tenant companies’ employees need bank branches, dry cleaners, restaurants, or café’s where they can have business negotiations in a more relaxed environment if needed. Employees will appreciate grocery stores and fitness centre too.” – explained Valter Kalaus, managing partner of Newmark VLK Hungary.
Valter Kalaus as the guest of the Jazzy Radio, Business Class program was talking to Melinda Kamasz and Csaba László
He believes that landlords nowadays have to accept that retail tenants are not willing to pay rent. What they are ready to pay is some smaller, revenue-proportionate fee and, of course, pay the service charge. Before COVID, landlords could ask for monthly rent of € 20-22/sqm for better retail areas, but this has melted significantly by now.
Ground floors are predominantly leased out by restaurant or café operators which welcome external guests as well. Their disadvantage, however, is that they mostly see a significant number of guests only during lunch hours, thus cafés limit their spaces to 150 sqm while restaurants don’t want to take more than 400-500 sqm, as it wouldn’t be profitable. However, there was a recently concluded deal (handled by Losonci György, responsible for the retail sector at Newmark VLK Hungary) in which a restaurant entrepreneur signed a contract for an 800 sqm area.
Some restaurant operators try to lease office spaces close to their central kitchen; several have two or even more restaurants, thus improving their efficiency. Quite a few experiment with vegan food as well which, however, are somewhat more expensive.
According to Mr Kalaus, fitness centres, typically built for the tenant employees, are performing well. Like restaurants, these also occupy approximately 400-500 sqm but are open longer hours, before and after the work as well. Moreover, recently, many of them have introduced 45-minute thematic classes, so office workers can pop in during their workday. On top of that these units also integrate well into the surrounding residential areas, so customers come from there too.
There is another aspect for landlords: sports and leisure service providers are good clients also because they rent areas that others do not want to. If they do, however, they will demand significant discounts, but they do not need natural light, or even windows for the offered activity. However, sound insulation, ventilation, fresh air supply, and security are crucial to install.
A few years ago, smaller supermarkets appeared on the street facing ground floors of the office buildings. They are excellent complements to other services, as they have no time limit and can provide more revenue-proportionate money to landlords. However, not every office building can open one if the warehousing and stocking conditions are unsuitable. Technical transformation can be disproportionately costly as well, thus not every retail chain would undertake this.
Valter Kalaus also emphasized that retail tenants of office buildings are not willing to sign long-term contracts. They want trial months or a maximum of one year to decide whether to stay or move. As a result, they are reluctant to make significant modifications or developments within their premises, which doesn’t give too much flexibility to the landlords. But at the end of the day, they usually find a common ground, as both parties need each other.
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