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Lessons from Landlords in China’s Post COVID-19 Recovery Phase

3/25/2020

Lessons from Landlords in China's Post COVID-19 Recovery Phase

With local infections down, China is getting back to work. As the lights are turned back on in offices across the country, landlords and tenants alike are inevitably finding themselves in a new paradigm. For cash strapped occupiers it means an assessment of the success of remote working, of the value that their office space delivers to them, as well as how well their landlords supported them during the crisis. For owners it means a tightrope walk between nurturing relationships with tenants and ensuring that rental incomes don’t become unsustainably affected. 

We’ve seen some key initiatives from landlords in China throughout the outbreak and into the recovery phase that have been invaluable for their tenants. What can owners across the rest of the world learn from how their peers in China handled the crisis? 

1. RENT REDUCTION 

Many understand that the business viability of their tenants is key to stable occupancy of their office property assets and long-term rental income.  
 
Although many office markets around China have experienced rental growth dips over the last quarter, many quality office landlords around the country have stepped up to the plate to offer rental and management fee concessions. 

So far, many major commercial property developers, including Wanda, China Resources Land, Longhu, Xincheng, and Poly have implemented certain rent reduction measures for their properties.
 
From a tax perspective, real estate rent involves the payment of VAT, corporate income tax, real estate tax, and other taxes. To reduce or exempt the related tax costs at the same time, landlords have been signing supplementary contracts with tenants to reduce the annual rent in relation to the amount paid towards taxes.

2. WELLNESS AND SAFETY

 
Landlords have been working closely with their asset services providers to ensure ongoing tenant wellness and safety through the crisis. This has included providing: 

  • Thermal scanning
  • Alcohol gel
  • Additional cleaning services 

Going forward, landlords and tenants will place greater emphasis on wellbeing and smarter workplaces including intelligent building management, wellness and safety management. The addition of these features will augment trust both between landlord and tenant, and between tenant and employee. 

3. FUTURE VALUE-ADDED SERVICES 

Looking ahead, quality office landlords in China are likely to go the extra mile in terms of tenant services offered. These new services could include: 

  • Business registration services 
  • Tax advice
  • Assistance in applications for business subsidies 
  • Service support for bank loans  

The value of offering these services to tenants is clear. It ensures that their survivability is enhanced, reducing the risk of default and eviction in the future. It opens potential future revenue streams for landlords, regardless of whether these services are offered free of charge in the coming months. And finally, it improves tenant retention levels due to stronger relationships between owner and occupier. 

4. RELATIONSHIP BUILDING 

Moving on from the COVID-19 outbreak, we expect to see quality office landlords in China building a stronger landlord/tenant relationship platform that allows the landlord to better understand the background and needs of every single tenant in their office building.  
 
Through this platform, a symbiotic relationship between the landlord and tenant could be enhanced by the landlord’s company leveraging its relationship with other tenants as well as any subsidiary company networks to satisfy the business needs of its office tenants. 

Fundamentally, tenants are looking to landlords during this time for:

  • Financial support 
  • Employee safety
  • Business guidance
  • Long term assurance 

Landlords who are able to provide this to clients put themselves in a strong position as the threat from COVID-19 retreats and economies begin to rebuild. 

To find out more about how Chinese landlords and tenants are managing through the recovery, subscribe for updates. 

 

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