7 Things You Should Know About Commercial Office Leasing

Today we have a special treat, a guest article by Conley Covert. Conley is a 5th generation Austinite, a real estate Broker in Austin, TX that specializes in Office Tentant Representation and Office Investment Sales. You can find more  information about Conley at http://www.skylesbayne.com/principals5.htm

1. Understanding Conflicts of Interest – Between Your Company and the Landlord. Putting a dollar amount to what your building owner stands to lose – by your leaving – is the start of developing a strategy for your company that works to your advantage. It may be obvious, but it’s important to restate – your landlord’s interest may or may not be aligned with yours.  As a result, you may not know every ‘card’ in his hand.  For example, when a tenant leaves, the landlord suffers lost rent, uncovered debt service as well as ongoing operating expenses and taxes. In addition, new tenants may require huge remodeling costs on top of the marketing expenses needed to attract them. The bottom line is this: Building owners generally make more profit in renewing a lease than in leasing to a new tenant.  Your goal is to understand this number (called renewal profits) and to win back a portion of this amount in exchange for renewing your lease.

2.  The Risk of No Plan – Even if You’re Planning on Staying. You may be in exactly the space you want – but if that is the ONLY signal you give to your landlord – they have no incentive to negotiate. As you know, supply and demand are the basic forces of economics.  If your landlord thinks you’re going to stay put – no questions asked – he will view the total ‘supply’ of sites you want (of all the sites available) as just one, and therefore the ‘demand’ for that site is very high. This is where it’s important to have a plan, a credible plan that explores your OPTIONS.  Here’s the kicker, a legitimate exploration of your needs and options may reveal a solution you had not considered that adds value to your company.  You may still want to stay in place, but having a realistic and economic option – that you can show to your landlord – is invaluable to your negotiating position.  The bottom line is this: If your building owner knows you won’t leave, how hard will he try to keep you?

3. Reviewing Space Needs May Change Your Thinking – And the Landlord’s. There is a relationship between updating your space needs and reaching a reasonable lease renewal agreement – including adding additional amenities for your employees. Reviewing your space needs is more than a cursory review of your current situation.  It means reconsidering office configuration, updating technology infrastructure, eliminating wasted space and adding amenities for employees.  If a landlord knows these are the things you need, they are much more willing to make sure you don’t go elsewhere to get them. The bottom line is this: The landlord needs to be aware of what you need, because if you don’t ask for it, you won’t get it.

4. The Danger of Assuming the Market for Space is Efficient. The market for alternative, suitable space for your company – that offers significant cost savings – may exist.  But your landlord doesn’t want you to hear about it. If your core business isn’t real estate, you may not be fully aware of market conditions.  They have certainly changed since you last signed your lease. Competing building owners may have different cost structures – less debt, a different marketing plan, even lower taxes – and offer an attractive alternative. The bottom line is this: There may be deep discounts available in the market.  You need to be aware of these opportunities.  At some point, your landlord needs to know just how informed you are.

5.  The Perils of Negotiating for Yourself. The longer you wait to sit down with your landlord – without a credible plan for moving – the less likely your landlord is to negotiate on ANY issue. Many users of space underestimate how long it takes to properly negotiate all the issues in a lease.  The truth is, it requires months in most cases.  The longer you wait to start the process, the greater the likelihood you’ll be forced to live with the terms that are offered. This is especially true if you’re unable to present viable options – which requires detailed information regarding both space planning and alternative sites. The bottom line is this: You may have your space and not want to move, but unless you negotiate as if there was a real possibility of moving, you have severely limited your negotiating leverage.

6.  Know Who’s Really Representing You. Ask a Broker about their firm – who they represent – and where their fiduciary interests lie. Today there are a large number of full-service brokerage firms that have a Tenant Representative department, but also have another division that represents Landlords in their Leasing efforts. Avoid conflicts of interest by working with a firm that exclusively represents Tenants in their Leasing needs.  Firms that work with Landlords will keep their best interests nearly every time, as they typically are a larger client. The bottom line is this: Don’t find yourself in a situation where your Tenant Representative is representing you against a Landlord his or her firm represents.

7. Selecting a Real Estate Firm – Why You Should Consider a Firm That Works Exclusively for Tenants. Typically a broker will save a clients 15% to 25% in occupancy costs – by putting your interests first and foremost.  That’s how they build a reputation for integrity. Advantages: Create a competitive environment for your Landlord . You will see EVERYTHING on the Market that meets your search criteria. They will fight to negotiate the best deal possible, tailored to your needs, and your needs only.  They negotiate for you, so you can maintain a healthy relationship with your Landlord. Market Knowledge – They will share with you everything they know about pre-existing Leases.