Many Companies to Reduce Real Estate and Renegotiate Leases in 2021

The pandemic changed the calculation on crafting the right real estate strategy for 2021. According to a new LeaseQuery survey, cost optimization, flexibility and liquidity are now the key goals driving companies’ plans to rightsize and renegotiate their real estate and leasing footprint in the next year. After pulling through unprecedented disruption this year during the coronavirus recession, companies are heading into 2021 with a newfound appreciation for agility and essentialism.

As for rightsizing, 31% of survey respondents are reducing their overall real estate footprint now. Another 22% expect their lease portfolio will be smaller next year, according to The COVID-19 Lease Impact Report: How Companies are Navigating Lease Accounting’s New Normal. LeaseQuery based this report on a survey of more than 400 accounting and finance executives.

How the Pandemic & Economic Environment Shifted Accounting & Finance Priorities for 2021

“For accounting and finance executives in 2020, real estate and leases are in the crosshairs for cost-cutting in response to the rise of the remote workforce, shifts in demand and declines in traditional commerce,” said George Azih, CEO and founder of LeaseQuery. “Physical footprint decreases may be partially offset by increases in 2021, but it’s unlikely that real estate will return to pre-COVID 2019 levels. More than ever, companies are adopting lease renegotiation and rightsizing to generate cash flow and liquidity.”

Roughly one-third of companies report asking for rent concessions in 2020. The impact is particularly pronounced in hard-hit industries—92% of restaurants and 54% of retailers asked for rent concessions as a direct result of the pandemic.

Increasing flexibility will also drive many companies to renegotiate terms this year. Roughly one in three companies are renegotiating leases for more favorable terms. When asked what the most important factor was in negotiating terms for next year, 35% of finance leaders cited exit clauses and 29% pointed to contract duration.

Key survey findings also include:

Access to capital – Optimization efforts in 2021 will help companies bolster their liquidity, which 45% of companies note as a bigger priority following the pandemic.
Insight to make critical business decisions – Real-time insight into financial information is highly sought after due to the pandemic and economic environment. In fact, 34% say enhancing data visibility and 38% say investing in technology are bigger priorities for 2021.
Prioritizing accurate, on-time financial reporting – Among survey respondents, 85% say implementing the new lease accounting standard remains the same or a greater priority, and 94% say financial reporting compliance remains the same or a greater priority.

Azih added, “In a time of continued volatility and emerging risk, it’s incredibly valuable to optimize what companies can control. Businesses should continue their path to recovery and growth by refining their lease strategy and readying for compliance with the new lease accounting standard as soon as possible.”

For more information, read the full report: The COVID-19 Lease Impact Report: How Companies are Navigating Lease Accounting’s New Normal.