Commercial Real Estate Savings Masterclass: 5 Key Learnings

October 19, 2022
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Commercial Real Estate

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Tenant CS
Tenant CS
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Recently, Tenant CS partnered with Weel (ex-Divipay) to deliver a Masterclass around commercial real estate savings strategies. During the session, Matthew Pollak, Hannah Feltham and Jonathan Issacs shared some great insights about workplace planning and savings opportunities.

If you missed it, you can watch it on demand anytime through this link. In the meantime, here’s a quick recap of the key takeaways from the session.

1. Don’t talk to the market until you’ve done your workplace strategy

Many commercial offices aren't working as intended because they do not cater to new hybrid working arrangements or enhance a company's recruitment and retention efforts

But re-evaluating your footprint raises some tricky questions: 

  • How much space is necessary? 
  • What services and amenities are important to staff? 
  • What's our ideal location? 
  • What's the budget? 

Enter workplace strategy. 

Workplace strategy aligns a workplace's physical environment and infrastructure with a company's goals, culture, and ideal way of working. And it can help decision-makers hone in on the "why" before jumping ahead to the "what" and "how." 

It's a crucial step in executing your commercial real estate strategy, and it's only after you've run through this process that you can work out a way to extract savings and get the best outcome for your business. 

So, before you go to market, take the time to assess your current and future workplace requirements, whether for new premises or optimising your existing space. The outcome of your analysis will give you confidence in your property strategy, inform the next steps and make the whole process much smoother.

2. Timing creates leverage, so start early

One of the most important things a commercial tenant can do is to get started early. This way, they'll have enough time to go find suitable space, negotiate acceptable lease terms and won't enter negotiations with their back against the wall. 

When a tenant is unprepared, impending deadlines can be used against them in negotiations because of the urgency they create. Landlords also tend to become more flexible as negotiations progress. Their first offer can look very different from their final offer, and they only really give up big ticket items to get a deal across the line. 

Timing is also crucial to give you the breathing space you need to conduct your workplace strategy and truly understand your property requirements before you canvass the market for available options or renegotiate with your landlord. 

Calculating the amount of time needed to secure a great space and deal comes down to the market, the size of your business, your internal objectives and projected future growth. However, we recommend starting within the following time frames:

3. Always engage in a stay vs. go process

Canvassing the market to uncover suitable relocation options helps you make wellinformed decisions, creates a level of ‘market tension’ and gives you the leverage to negotiate more favourable leasing terms with current or prospective landlords. So, if you're faced with an upcoming lease expiry, always engage in a stay vs. go process by:

  • Aligning your business and real estate goals
  • Evaluating renewal options
  • Selecting a suitable relocation option (or options)
  • Calculating landlord costs 
  • Calculating potential savings 
  • Submitting proposals

You can read more about the Stay vs. Go process here

Above all remember these three things:

  1. There's never been a better time for commercial tenants to test the market
  2. Creating competitive tension between landlords and agents yields the best results 
  3. It's not always "cheaper" to stay put in your current premises

4. Subleasing isn’t the only disposal strategy

Subleasing is a strategy whereby a tenant of a commercial property (sublessor) rents out all or part of their premises to a secondary tenant (sublessee). For sublessors, subletting can act like a short-term bandaid to reduce costs and increase cash flow. 

Naturally, over the past two years, subleasing has surged across Australia's east coast office markets as companies reassessed their current and future needs. 

But subleasing comes with pros and cons, and it's not the only strategy for those looking to get rid of excess space. There may be other ways a company can recover costs if their space is not aligned with their workplace - This is particularly true for those with less than two years left on their commercial lease. 

In any case, subleasing should form part of a detailed property strategy. And both the sublessor and sublessee should approach it with an air of caution and seek the help of a real estate professional.

5. Develop your strategy around landlord motivators

Landlords can improve the value of their commercial property in one of two ways:

  1. By increasing face rents 
  2. By reducing the number of vacancies in their portfolio

The chances of a landlord negotiating higher rents in a soft market are unlikely, so we will focus on vacancy. 

Vacancy is costly for landlords in any market. But in today's climate, Landlords will go to lengths to avoid it and guarantee their income for a longer term, even if it means accepting less rent or offering higher concessions

So, work with a professional or do your research to gain detailed knowledge of market rents, incentives, vacancy rates and escalations. Remember, broad market figures will only go so far. It's also important to understand expiry profiles by building and by landlord to help your negotiation specifically.

Get in touch with Tenant CS

Are you looking to increase your commercial savings or renegotiate onerous lease terms? 

Having a tenant rep in your corner is more valuable than ever. Make the most of the office rental crisis, contact our team today for a obligation-free exploratory call.

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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