5 things to avoid if your lease is expiring in 2022

December 15, 2021
|
Commercial Real Estate

Author

Matthew Pollak
Matthew Pollak
Director

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Being the start of the year, you are probably making strategic plans for your business, and that commercial lease you have expiring in 2022 (or H1 2023) is likely making you anxious.

You will save money, but how can you know how much. You need a new style, but how can you know what that is, and how that will enhance your company culture.

That’s where we come in. Tenant representatives are real estate consultants to businesses, as well as workspace planners, leasing strategist and lease negotiators. We have the market knowledge and create leverage to secure properties on the best terms. We’re the real estate experts you don’t have in your business but need at this crucial time.

But we understand that not every business is going to engage a Tenant Rep, so to guide you during planning, we share 5 things to avoid if your lease is expiring in 2022:

  1. Seeking advice from landlord representatives
  2. Not seeking independent advice on how the Market has changed
  3. Holding onto the redundant fitouts
  4. Exercising an option
  5. Enquiring through commercial property portals

1 Seeking advice from landlord representatives

When choosing who to represent your interests in negotiations with the landlord be mindful of talking to your current managing agent or the leasing agent that put you in that space.

Remember this; in the commercial leasing sense, Real Estate Agents are required to get the best deal for the landlord. That includes your Managing Agent and the Leasing Agent that put you secure the space.

On the other hand, Tenant Representatives exist to represent businesses’ interests in negotiations against landlords and real estate agents to secure tenant-centric lease terms and savings.

TIP: Avoid thinking that a landlord agent, while at no cost, is adding value to you. They don’t represent your interests as they’re a landlord’s agent… any landlord, whoever will pay the most.

2 Not seeking independent advice on how the Market has changed

The Real Estate market has many moving parts, especially since COVID. Incentive levels, vacancy rates, each individual landlords’ vacancy rates – all variable factors which, if known, will be the difference between a good deal and a GREAT deal.

If you don’t have a constant eye on the market, or don’t know where to get this information from, you will likely pay more than you need to. Remember, you can’t trust a landlord’s agent to give you information about a landlord.

If you’re still planning on doing it on your own, we recommend negotiating on minimum of 3 properties, including 2 relocation options and your renewal. Run each proposal to ground. Leverage the strengths of each against your favourite option.

TIP: Using leverage, the incentive on the offer to renew your lease should reap the same incentive as a relocation option if you play your cards right.

3 Holding onto the redundant fitouts

1-to-10sqm is so 2019. Or is it? More than ever the answer depends on your company, your business type, and what you want the workspace to solve for your business. Will it be:

  • A safe space for those who just want (or need) to leave home
  • A place that inspires creativity, productivity and collaboration
  • A fun space where you’re creating a team, not just collecting employees

Whatever the intention, limited parts of your existing fitout will suit the new world. Every employee now knows their happy place to work. Whether it’s outside in the sunshine, on the couch with legs up or tucked away in a dark space, if you want staff back to the office, you need to create a space that caters to everyone.

And then there’s the technology. The word “hybrid” doesn’t just describe your workforce, but every meeting will need to cater for a “hybrid conversation”. Whether the staff are meeting in-person or online, meeting spaces need to cater for that.  

So yes, WFH means you can have less workstations, but getting the team(s) together means you need more collaboration space. Every company is different.

TIP: Fitout designers offer free ‘test-fits’. When you find a space you like, give them your brief and ask how it will fit in that space. It helps you visualise it on a floorplan.

4 Exercising an option

Option periods are great in a tight market, but in a tenant-market (like we’re in now), they’re irrelevant.

If you did exercise your option, the renewal terms would be dictated by your current lease.

Some of the traps:

a) The rent will be reviewed to ‘market’. That can be defined in so many ways, but generally it excludes:

  • Sublease opportunities: which are in abundance now and tenants are generally accepting rent discounts of 45-60% compared to their existing lease rate.
  • Incentives: new tenants are entitled to 30-55% discounts by way of incentives. If you exercise, you’re likely waiving your right to an incentive altogether.

b) In-flexible lease terms: in a world of uncertainty and with an upper hand in negotiations, you can ask for Early Termination clauses, caps on outgoings, no make goods. You lose that right when you exercise your option.

c) No negotiating power: the ultimate power in negotiation is the ability to ‘walk away’ if the price isn’t right. Options dictate the formal and binding arbitration if you can’t agree commercially on rent.

TIP: Don’t exercise your option, but in some cases, use an encroaching exercise date as leverage to pressure other landlords to give you the terms you seek.

5 Enquiring through commercial property portals

If you have enquired about leasing opportunities online via the commercial property portals you might have heard the following responses from the leasing agent “that property [doesn’t suit you] [is too expensive] [is an old listing] [has just received an offer] [has an uncommercial landlord]…. But I’ll send you other options.”

They’ve got you. You’re now a qualified target. Keep in mind that these websites are marketing tools for Real Estate Agents.

Use these websites to your advantage. How much vacancy is there in the building you’re looking at? What rents do they charge? What are the facilities of that building? But know the trap you’re falling into if you enquire this way.

TIP: Use these sites to help you work out the style of building and fitout you want.

Let's talk, we can help.

Tenant Representatives are consultants who provide real estate advice to business leaders. At Tenant CS we are negotiating 100’s of deals across every Australian city, every day. We only ever represent tenants, never landlords, and because of that we know we get better results, better incentives, better rates and more options for tenants.

A typical project for us is to act as the Tenant’s consultants, canvassing the market for co-working, sublease and/or traditional office leasing, which we then negotiate and secure on best terms.

By using an independent Tenant Representative like us you will see the best stock in the market across all agency or independent listings, and our strategy will get you the best negotiation outcome.

Our projects include:

  • Lease Disposals
  • Renew vs Relocate
  • ‘Blend and Extend’
  • New Site Searches
  • And more…

While we usually charge the same way as agents (yes, we make the landlord pay the bill), we do not act for landlords – ever. Typically, the savings we generate are 500%+ of the fee we charge.

If you want to maximise your savings, have a Tenant Representative on your side - get in touch Tenant CS today.

Generating savings for your business is our only KPI

We're market experts, fierce negotiators, proudly independent and conflict-free, securing you the right outcome on the best terms ⁠– every time.
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