Why Tenant Representatives Are More Valuable Now Than Ever Before

November 12, 2020 | Commercial Real Estate

business discussion about whether to use a tenant rep

Do you remember your school formal, ball or deb? Most people partnered up before the event, but those who had the most fun were the ones who went solo.  

Why? Because they didn’t have any preconceived ideas of who they’d spend their night with. They weren’t confined to their date or their date’s circle of friends. Instead, they mingled with the other stags and might have even tempted someone else’s date away from them, creating a competitive environment.  

That’s how we want you to think of approaching your next lease term. Resist speaking to an agent because you’ll be limited to their ‘circle of friends’. And don’t go into the process with preconceived ideas of the outcome, location, workplace style, fit-out type or even how often your staff will be at the office. Keep an open mind and take advantage of any opportunities that arise. 

COVID has created a surge of sublease and direct leasing opportunities. And there are no chaperones at this ball. 

Utilising a Tenant Representative will provide your company with the consultant property experience to sort through the opportunities and unearth the best outcome for your business.  

Here’s why Tenant Representatives are more valuable now than ever before: 

1. Engaging us is unlikely to cost you.

Competition is fierce, but there’s only one metric that the Landlords (and their investors) care about: occupancy. And we’ve found that, if we can bring the tenant, 9/10 Landlords will happily pay our fee – no conflicts of interest. That means you can funnel your limited capital back into your business, rather than having to pay consultants.

Image of person calculating the cost of using a tenant rep

2. Off-market opportunities are in abundance. 

Companies are considering their future property requirements before they make any redundancies, sublease or relocate. They do this to quantify their savings (in the hope of avoiding or reducing the number of redundancies). But we’re also seeing many multi-city clients doing it to see how they scale back their office footprint (thanks to the rise of video conferencing and remote working).  

What’s more, agents also keep some stock unadvertised, so they don’t have to split commissions, which are different from Tenant Rep fees, with other agents.

As Tenant Reps, we get access to all these opportunities, both on and off-market. And more options means more competition, which leads to better results for you! 

3. Your needs have changed. 

Shifts in headcount, WFH, and the rise in video conferencing have impacted how much space businesses will need going forward. But this doesn’t necessarily mean that less space is required. Here’s why:

New needs increasing size requirement  New needs decreasing size requirement 
Headcount expansions  Headcount contractions 
Site consolidations  Site consolidations 
Increased desk size  Shared workstation plans 
Creation of collaboration zones  Fewer boardroom meetings 
Requirement for zoom-rooms  Cloud-based IT  
Social distancing  New satellite sites in non-CBD locations 

4. The market has changed. 

Tenants are unintentionally causing the decline of commercial rents and improvement of incentives. That is because, with every sublease opportunity, a landlord has to re-forecast their pricing expectations to compete. 

Commercial tenants who are subleasing excess space will have written off the liability from their balance sheet. And any added income generated that’s from the sublease, sale of a fit-out or getting out of a makegood obligation, is a bonus. Put simply, tenants are offering up spaces to the market, and they have nothing to lose in the process. 

For sublessees, what’s great about subleasing space is that:

  • Rents are generally 50% of the rate they’re paying the landlord
  • Spaces come fully fitted and ready to occupy
  • Lease terms are short and flexible

This is the new competition for landlords, and they are competing by taking advantage of the low cost of capital and offering better end of trip facilities, foyer upgrades, spec fit-outs and of course, increasing financial incentives. 

But subleasing has inherent risks for the sublessee. The head lease constrains your ability to negotiate lease terms, and the fine print in the contract that your sublessor provides could place your business at risk. So, if you are looking to sublease, engaging a Tenant Rep is worth it to reap potential rewards.

A picture to depict a coworking or subleasing arrangement

5. There’s more to negotiate. 

Yes, incentives are hovering above 30% and face rents currently back to post-GFC levels in many CBDs. But with tenants now in the driving seat, there’s more to negotiate and more lease costs to negate.

In our experience, tenants who negotiate their lease pay an average of 22% higher rent over the term of the lease. So, it pays to partner with a professional. Recently, we’ve also been able to negotiate COVID-friendly clauses successfully, including: 

  • Makegood removal 
  • Force Majeure insertions  
  • No annual increases 
  • Early termination 
  • Cost of COVID cleaning being excluded from Outgoings 

Get in touch with Tenant CS

At one point in time, the cost of moving and a new fit-out would deter tenants from relocating. But now that size requirements are circa 20% less and rents are around 30% lower on an effective $/sqm basis, this is no longer the case. COVID has created a competitive environment where tenants can relocate, install a new fit-out, and still pay less. 

On average, the Tenant Representation Fee is the equivalent of $12/sqm over a lease term, but we save you 10-25% across the lease. So, it’s a no brainer. 

For all of these reasons (and more), it’s more important than ever to get an experienced and dedicated tenant rep on your side. Get in touch with us today to see how we can help you!

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