Lease Smarter with a Tenant Representative
by Bo Keatley, NAI Brannen Goddard
You don’t have to tell many entrepreneurs that one of the highest costs associated with running a business is renting office space. Those already in business know. Changes in commercial real estate, ranging from tax implications to environmental issues, continue to profoundly influence space requirements—and occupancy costs. Tenants face both complexities and opportunities when making the right decision about current and future space needs.
One of the smartest moves you can make as a business owner is enlisting the services of a tenant representative. Hiring such representation means less legwork for you—and it doesn’t cost you a thing. That’s because a tenant representative acts as a “buyer’s agent” and is compensated by the landlord/property owner. Better yet, business owners who use a tenant representative see significant value in the process. They also receive helpful information covering a wide range of services including:
- Tactical and strategic planning
- Demographic and location consulting
- Renewals and expansion
- Survey and building selection
- Disposition of excess space/subleasing
- Space and financial analysis
Using a Tenant Representative: The Advantages
Successful relocations and lease renewals require a thorough knowledge of the market—knowledge you probably don’t have. They also demand the ability to coordinate economic and operating considerations with contractual flexibility. Using a tenant representative can shape the direction of your business by giving you valuable real estate solutions.
Here are just some of the benefits you’ll gain by hiring a broker—and for a small business, the advantages of Needs Identification and Flexibility are key:
Needs Identification
Geographic, real estate, economic and space considerations are compiled for you. Your tenant representative researches the market, analyzes alternatives, arranges visits and reviews the business terms of the lease. You’ll also receive assistance in retaining lawyers, accountants, insurance providers and other outside professionals as needed.
Flexibility
Depending on your situation, flexibility may be even more important than costs. Your tenant representative can negotiate required options and necessary terms for you.
Market Knowledge
In-depth advice based on market knowledge, research and experience in the field will place you on equal footing with professional, full-time landlords.
Purchasing Power
A tenant representative’s expertise and ability to create a competitive environment among candidate building adds up to greater leverage and buying power for you.
Objectivity
You’ll gain objective evaluations of potential alternatives, eliminating personal bias.
Financial Analysis
Costs associated with the transaction are analyzed and documented so a comprehensive financial plan can be represented to you for final facility decision-making.
Negotiation
Your tenant representative’s experience and familiarity with commercial buildings and market conditions translates into more concessions, greater lease flexibility and fewer hidden costs for you.
Consulting
You’ll have a real estate professional to consult with at all times and will be advised of key decision dates, lease reviews/renewals, annual escalation costs and other real estate.
Getting Started
It’s important to select a broker you feel comfortable with and trust. Your representative’s firm should have experienced commercial brokers and a diverse group of professionals with expertise in real estate, law, accounting, architecture and construction management. These individuals will possess extensive research capabilities, support systems and other resources to meet your objectives.
With your broker—and his or her firm’s comprehensive resources—you’ll gain a decided competitive advantage. First, your key objectives are identified and evaluated to properly assess all the financial and non-financial considerations. These include location criteria, transportation and parking, physical characteristics, utilities and services, external aspects and other specific requirements. Also, a thorough market analysis is compiled based on your needs, preferences and special requests.
Alternative economic solutions are evaluated and specific strategies presented, which may include leasing, build-to-suit, purchase or re-negotiation. Plus, a methodical and in-depth search is launched. This process covers market research, site selection, property visits and the negotiation of all factors associated with your transaction. Particular attention is given to space planning, value engineering and construction. But it doesn’t stop there. Your professional tenant services continue beyond the execution of your lease, with assistance provided to assure a timely, trouble-free move with ongoing support for future expansion, contraction or space disposition.
The Typical Process
Timing is everything. First of all, you need to decide when the time is right to obtain an office. DON’T rent office space unless absolutely necessary. Some businesses successfully operate from a virtual environment. Others need an office to house their employees together and/or bring potential clients or customers in for meetings. To make the best business decision, it’s important to understand your company culture. Most small businesses are unsure of their growth plans and need a certain amount of flexibility with office space.
After defining your appropriate requirements, your tenant representative or broker will likely evaluate subleases, executive suite options and direct office lease opportunities:
Subleases
This scenario involves leasing office space from another company’s leased office. Typically a sublease will be at a much lower rate than standard market and can have a lower lease commitment. (On a direct deal in a building, a 3-year lease is a usual minimum where a broker may find a sublease with 18 months left.)
Executive Suites
A turnkey office solution, executive suites are flexible in lease terms. Plus, you can find leases as short as 6 months. They’re most beneficial for small companies with fewer than 3 employees. You’ll pay a premium for an executive suite, since you’re only renting “by the office,” so it doesn’t make sense to choose this option if you have more than 3 employees. The cost to rent three offices, or more, at an Executive Suite Operator will be at a higher cost (one with flexibility though) than a sublease or direct office space.
Direct Office Space
This represents the least flexible and most permanent choice. In today’s market, most landlords prefer a minimum of a 3-year lease. The best way to ensure flexibility with the size of the space is through a potential phase-in or with rights to expand entered in the lease. Your broker can advise you on the best way to handle your growth and negotiate accordingly on your behalf.
These three scenarios offer only a brief summary of options. The actual leasing process involves many other aspects that cannot be appropriately explained until your requirement is determined. Your broker will assist you throughout the process and educate you further on the specific scenarios typical to your requirement. Occupancy costs are a major factor in running a business, so it’s essential to evaluate all market options, then compare these options to your specific objectives—before making this important business decision.
BIZDOMS ™ are for informational purposes only and are not intended to provide any legal, financial or other advice. You should consult with a professional in such fields before acting on any information on this or any other website.