Relocation or renovation: what’s driving the decision?

Relocation or renovation is a dilemma for many businesses.

Colliers International research shows more tenants are choosing to redesign their workplace instead of relocating.

It shows cost savings and space consolidation are driving leasing decisions.

Colliers found the five reasons companies opt to stay put are:

1. Competitive incentives are making them think twice about relocating. Landlords are offering reduced rents, low rental review patterns and substantial service upgrades to help them retain key tenants.

2. When brand is already strong, they prefer to stay where they are close to clients, competitors and suppliers. This makes it easier to attract industry specialists.

3. If they already have a good team, they risk losing staff if they relocate to a new location.

4. Offshore decision makers saying no to CAPEX, making staying a preferable option.

5. Redesigning may be the most cost-efficient way to upgrade to a productive, high-performance workplace.

Colliers research also shows many businesses are looking to consolidate their space, with tenants putting a priority on flexibility in their workspaces.

Colliers International Managing Director of Project Services Andy Kelsey says the decision of whether to relocate or renovate is usually cost driven.

“With property typically forming 5%-10% of an organisation’s cost base, tenants are looking at ways to minimise this cost or utilise their space more efficiently,” he says.

“Many of our clients consider relocating, however landlords are countering this by offering competitive incentives and attractive building upgrades to retain key tenants and avoid lengthy letup times should the premises become vacant.

“Incentives to remain are often as high as incentives to relocate. Refurbishment often becomes a much more cost-effective option, especially if the current location suits the business and there is retained investment in core infrastructure such as telecoms links, building services etc.”

Colliers International National Director of Tenant Representation Simon Crouch says economic circumstances play a role in deciding whether a tenant will renovate their space.

“In the aftermath of the GFC the majority of tenants chose to renegotiate leases and utilise large incentives as rent reductions rather than investing in fitout,” he says.

“Whilst the leasing deals still favour tenants across all commercial property markets in Australia with business sentiment improving, many of our clients are now taking advantage of the large incentives to reinvest in their business by improving their fitout and repositioning themselves for the greater productivity and growth.”