Volatility is the Name of the Game: Part 2

November 29, 2022 • At both global real estate conferences I recently attended it was clear that Volatility is the Name of the Game across all sectors of the real estate industry. Thousands of professionals from North America, Europe, and Asia joined me at the ULI Fall Meeting in Dallas and the ICSC Law Conference in Orlando to get a better handle on how to manage their businesses in this unsettling new normal.

The VUCA Environment

Compounding the challenges of a turbulent business climate, we’re also confronting high degrees of uncertainty, complexity, and ambiguity, or, to borrow a term coined by the military to describe the obscurities of modern-day warfare, a VUCA (volatile, uncertain, complex, ambiguous) environment. Rapid and unpredictable change is the norm. It’s hard to prepare for, feels chaotic and confused, and the root of the problem is unclear.

We began to experience this in 2020 when Covid upended the world we thought we knew. For property owners, the traditional guard rails that existing leases were thought to provide could no longer be consistently relied upon, as evidenced by the tens (or hundreds) of thousands of lease amendments that were penned over the following months.

Meeting the Commercial Leasing Challenge

In this VUCA environment, landlord and tenant leasing teams continue to be challenged when it comes to delivering consistent high-performance results. We believe meeting this challenge requires transforming time-worn, inflexible, long-term perspectives into a flexible, innovative approach.

It’s so easy to cling to what we’ve always done and hope it will continue to work. To counteract this tendency and increase the odds that your leasing process will meet the VUCA challenge and deliver a signed lease, time after time, here are a few strategies that will facilitate this.

Modernize

This is a two-step process. First, you need to ditch your dinosaur form lease that includes every landlord/tenant issue your company has ever faced and create a 21st-century lease that is streamlined, more even-handed, and less punitive. Second, you need to refrain from ever responding to an open issue with “we never agree to this” and instead thoughtfully consider the other party’s request.

Adapt

The times, they are a-changing, at the speed of light. This means that your leasing process must seamlessly accommodate the unexpected, whether it's a micro change that only affects the premises or parties to the transaction or a macro change such as increasing interest rates or market fluctuations. For example, in May of this year, when Amazon began unloading millions of square feet of industrial space, smart industrial landlords modified their negotiating positions immediately and accordingly.

Plan, Coach & Pivot

Guide your team around constantly changing plans of action that respond in real-time to new issues and realities. Keep everyone informed about the nuances and tenor of the negotiations every step of the way. Take full advantage of good working relationships to ensure everyone is focused and in action. And remember, speed is essential: time kills deals — especially now.

Looking Ahead

Is your leasing process ready to withstand the challenges of today’s VUCA environment? Call us today to make sure. You can’t afford not to.