PROPERTY: Sub-Lets Feature More Strongly
Recent Western Cape Business News
While unlikely to reflect on leasing schedules and vacancy reports, sub-lets are becoming increasingly prevalent in the commercial property market. Colin Harvey, Director of Broll Cape Town, reports that sub-lets are becoming more widespread in the office sector, resulting from companies downsizing, consolidating or streamlining. In other cases, corporate mergers have resulted in premises becoming redundant as the companies integrate.
Even though these unutilised spaces are vacant, Harvey explains they are not necessarily reflected as vacancies as there is a lease in place and rental is being paid.
“As tenants are challenged by consolidation, growth or change, it is essential to ensure that their property and occupation obligations are of optimal benefit to their businesses wherever possible, and sub-letting is one of the solutions which is proving helpful in the current market, as many companies are monitoring their bottom-line extremely tightly,” says Harvey.
Companies are required to honour their covenants over the space, regardless of whether they occupy the space or not. As a result it can make it difficult for the corporate to cut property costs when restructuring, even when securing a sub-let, for which landlord approval is required. Harvey points out that permission to sub-let cannot reasonably be withheld.
In some cases the lessee is required to make a rental contribution towards the sub-let space, as well as honouring their new rental obligation. “This is largely due to in-force rentals being above current market asking rentals. In some cases asking rentals have rebounded from a high of R125.00/sqm to R95.00/sqm. As a result some rentals are ahead of the market as lease terms were negotiated at the top of the market,” notes Harvey.
Broll has already assisted a number of clients who hold leases over unutilised office space, in some cases covering entire buildings, by finding tenants to take over these rental obligations.
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