Terminating Your Lease Early? Learn All About Surrender Offices
The COVID-19 pandemic has thrown uncertainty and disruption for many businesses. Hong Kong has seen more businesses early-terminating their office spaces. In Hong Kong alone, for example, the rate of surrender offices increased by as much as 55% from Q1 to Q2 of this year. More than 60% of vacated office stock in Hong Kong were occupied by foreign MNCs.
Why are companies scaling down and returning their office keys? The pandemic has negatively impacted the operations and revenue of many businesses, big and small alike. The big driver for early terminations are cost-saving efforts in a shift towards remote or distributed work models. At worst, businesses are shutting down and can no longer afford office reinstatement.
This growing trend has been termed as lease surrenders or surrender offices. As the name implies, these offices were given up or “surrendered” earlier than stipulated in the lease agreement. Of course, businesses who need to vacate their space early are motivated to minimize rental payments for a space they will no longer be using. The most cost-effective solution lies in getting a replacement tenant to take over the lease as soon as possible.
Read this guide to learn all about your options when terminating a lease early, and how marketing surrender offices can play to your advantage. Interested in renting out your office? Get in touch with us at firstname.lastname@example.org or WhatsApp +65 8817 9170.
How can businesses terminate an office lease early?
While long-term lease agreements in most Asian cities are 3 years or longer, there are ways for businesses to terminate a lease early while minimizing their costs. Here are the three main scenarios:
- Buy Outs: Most landlords allow businesses to fork over a lump sum payment based on the value of remaining lease payments. Since the landlord now has the opportunity to market a vacant space, it may be possible to negotiate for a lower buy-out sum. This option is often less ideal than getting a replacement or sub-tenant.
- Assignment of Lease: This scenario involves a complete transfer of lease ownership from one business to another. In most cities like Singapore, this can be done with landlord consent, with possible limitations depending on how many years are remaining in the lease.
- Sublease: Where a full assignment of lease is not possible, a vacating business may assume the role of master tenant and rent out the space to a subtenant. The subtenant typically pays the master tenant a smaller portion of the overall rent, reducing the master tenant’s overall costs (although not completely).
Not sure whether you’re eligible to rent out your space to other tenants? It’s important to communicate with your landlord, who will give you consent and inform you of the terms under which they will consider your lease pre-termination. Read our brief checklist on how to rent out unused office space.
What are the benefits of renting out surrender offices?
Surrender offices can benefit both parties involved: the business who needs to leave the space, and businesses looking for space. Especially during this period of economic uncertainty, new tenants can save a great deal in costs with surrender offices. Many of these spaces are not reinstated, which means that many of the fit-outs done by previous tenants are left intact. Businesses won’t have to fork out hefty upfront costs to get the space in move-in condition.
New entrants can also get a good rental discount for the remainder of the lease. In most early termination scenarios, surrender offices are marketed by landlords at a higher face-value rent than in the original lease, since these spaces are already fitted. As the new tenant will be unwilling to shoulder the full cost of the increased rental, the departing business often leaves behind a sum of money to pay off a fraction of the remaining rent. The new tenant, in turn, only ends up having to pay as little as 60% of the original monthly rent.
While the business vacating the office may still end up paying for some portion of the rent, this scenario is definitely better than having to bear the full cost of the remaining lease term.
How can businesses market their surrender office?
One big challenge for businesses who need to vacate their office ASAP is finding a replacement or sub-tenant right away. This is often difficult to do, as most landlords would focus their marketing efforts promoting already vacant office units, instead of ones that are currently occupied. Additionally, landlords will likely hike up the face-value rent of surrender offices, since they are not reinstated and can be passed on as fitted units.
At GorillaSpace, we can help businesses market all kinds of surplus office space, whether you’re looking for a new tenant to completely take over the space or a sub-tenant to split the rent with. These spaces will be featured as unique listings on our platform, showcased with HD photos and 360° panoramas.
If you have an appointed broker, we can feature them on your listing and send all leads to them directly. We can also market your space as a private listing on our platform, to avoid conflict with your landlord’s marketing efforts for vacant units in the same building.
Using our recommendation tool, businesses looking for space can get matched to your private listing based on their requirements. This way, you can get in touch with new prospective tenants in record time. It is 100% free to list on our platform, and we only take a small commission once you have a closed deal.
Planning to terminate your office lease early? Get in touch with us now at email@example.com or send a WhatsApp message to +65 8817 9170. We’ll help you find the right leads.