Directors Giles Knapman and Holly Bailey from Kernel Property, who spoke recently on The Lawyers Weekly Show, have stated the way that law firms occupy their space has shifted due to more staff opting to work from home. This has called for building in some flexibility around expansion rights and contraction rights in leasing agreements.

“What we’ve seen in the market was in 2020 a lot of firms delayed decision-making where they could. And where they couldn’t we were very much advising firms to do a 12-month position with a 12-month option term. Because committing to a five or a seven-year lease in the world that we’re in, particularly last year, just wasn’t feasible,” said Ms Bailey.

Ms Bailey explained that building flexibility into the overall deal so that there’s protection in the future is a key feature in their recent leasing arrangements.

“I think a big piece of any lease negotiations that we’re doing and structuring of deals is in flexibility. If a client is into, or is willing to enter into a log of five to seven years term lease, sometimes more, then we want to build in some flexibility around expansion rights, contraction rights. It’s right of refusal,” she said.

According to Ms Bailey, across Sydney and Melbourne, there has been a big surge in available sublease space. Companies have been offloading their space because they’re just not occupying it. Across Sydney and Melbourne, each has increased to about 200,000 square meters of available sublease space.

With a significant increase in sublease space, Mr Knapman has stated that law firms or any other professional service firms that feel comfortable, can take advantage of the market.

“To lock-in for the long-term, where they have the confidence that the market or the terms of the lease structure they can put forward, they can agree to, are far, far superior than what they would have agreed to in, say, January, February 2020,” said Mr Knapman.

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Further, Mr Knapman explained that landlords in this market will also be prepared to offer 12 or 18-month extensions, which he says in an all market equilibrium, they typically don’t want to agree to do that. Lawyers and any lessee does have the choice that most existing landlords will be able to accommodate short-term holdovers or consider a new long-term lease.

As leasing arrangements have become more flexible, the question remains as to whether in the post-pandemic landscape people will want to return to the office full-time or how office spaces will need to change to incentivise people to want to come back.

“How space is designed in the future is still unknown. Firms, whether it be legal or any other type of firm, aren’t redesigning their office to be COVID friendly, that’s known. So they’re not doing their social distancing measures, sneeze screens, all those sorts of things,” said Ms Bailey.

“How it’s designed in the future is still a big question mark. But I think everyone recognizes that it’s got to have more collaboration spaces. You’ve got to have a space that actually makes staff want to come into the office. What am I getting out of this space versus what am I getting at home?

“It has to be a space that encourages collaboration and encourages staff to get back, but in terms of how it’s actually designed and what it looks like in the future, I think it’s still a bit of a question mark, and it’s certainly changing all the time.”