Dive Brief:
- Companies will have smaller real estate footprints going forward because of the pandemic and the shift to more at-home work and shopping, a LeaseQuery survey of more than 400 finance professionals found.
- 31% of finance leader respondents say they're reducing their real estate footprint and 18% say they're reducing their real estate leases.
- For real estate leases companies are retaining, 29% have asked for rent concessions and 31% are trying to get more favorable terms.
Dive Insight:
Of those renegotiating their leases, 35% want better terms in exit or termination clauses and 29% want to change the contract duration.
Many of the companies seeking rent concessions are in restaurant and retail businesses: 92% of restaurants and 54% of retailers say they asked for rent concessions as a direct result of the pandemic.
"While the global pandemic and economic downturn affected each company differently, the common denominator is disruption," the report said.
Not all companies are planning on reducing their footprint; just over 20% say they plan to increase space next year. These companies are concentrated in manufacturing, industrial and healthcare industries and see increased production and service demands.
New standards
Recent changes to lease accounting standards are playing into companies' decisions. The changes, which require operating leases to be accounted for on the company balance sheet the same way as capital leases, is resulting in an average 15-fold increase in balance sheet liabilities.
That could result in companies being over-leveraged, or at least appearing over-leveraged. That's "a major flag to stakeholders or investors in a challenging economic climate," the report says.
Equipment leases are subject to the new rules as well: 20% say they're reducing their portfolio of equipment leases and 12% say they expect to have fewer equipment leases going forward.
The new lease standards, adopted by the Financial Accounting Standards Board (FASB) last year, apply to public companies; private companies were given until the end of 2021 to comply to avoid burdening them during the pandemic.
