In commercial real estate leasing there are many different factors that come into consideration with any lease negotiation. That being said, some stand out as the most common issues to be worked through by landlords and leasing brokers.
Initially the tenants ‘call the shots’ when it comes to starting a negotiation and making an offer on leasing office space. The essential ‘factors of attraction’ have to be there at the very start to get things moving. Typically those issues are:
- Occupancy costs – the rental spend has to be there at the beginning of any lease negotiation. Can the tenant afford the property given all the factors of occupancy? Remember that occupancy costs add up and include base rent, outgoings, electricity, water, communications costs, and maintenance. These are base building charges that exist in most leasing deals; look at the building budget for this year and understand how that budget will impact the property and the occupants. What are these costs with your quality lease listings? Can you provide a tenant with all of these facts?
- Technology support and integration – Most tenants in office space today want to integrate their business into the World Wide Web and global market place. That requirement could include high speed online portals, reliable telephone systems for both wired and mobile communication, data cabling, dedicated antennas for special tenant use, and secure risers for highly sensitive cabling and portal communication.
- Environmentally friendly occupancy – Most office tenants today will ask questions about natural light availability, energy costs for tenants, air conditioning quality and service, and the building compliance to environmental standards and safety support systems (fire, evacuation, bomb, and other modern day threats). You will need specialised consultant or engineering reports to provide these answers.
- Business location and proximity to other tenants – Some businesses like to know who and what other businesses occupy premises in the same location. There are sensitivities that can exist between tenant types and across tenant proximities.
- Branding – What image and branding can the tenant bring to the property? There will need to be strategies in place for directory boards, advertising, signage, and logos. In a building with multiple occupants, the strategies should be set. Each tenant will have certain branding demands; in some cases you can ask for extra rent to be paid for special considerations such as ‘naming rights’ and the directory signage.
- Landlord – Many tenants know all too well that a landlord can make or break comfortable lease occupancy. Some landlords are just too tough on tenant occupancy, fitout use or flexibility, and mid-term rental review negotiations. Over time that can make things really frustrating for tenants that just want to get on with business.
- Fitout – What will be the fitout requirements and specifications for any tenants? The landlord should determine what ‘standards should be set’ when it comes to tenant fitout and construction; in that way the quality of the building is maintained. The landlord should also determine what they will regard as ‘base building’ as any landlord cost in a fitout.
When you have these 7 factors under control for your lease listings, you have most of the lease momentum under control.
In commercial real estate today, the leasing of office premises is a relatively easy process to prepare for but accurate facts and property information are required. In many respects you will only get one chance to promote a vacancy for lease; have all the facts and information under control from the outset.
Real Estate Leasing Agents should help landlords move through the tenancy and property preparation issues so that the marketing of the vacancy can create real interest in the local area and with the targeted group of tenants. When you are prepared for the lease activity, time on market is shorter and lease negotiations are more direct; in larger office properties and in modern buildings you will also require a ‘tenant information memorandum’ to assist the leasing process.
Here are some tips to help that leasing preparation process occur efficiently:
- Get a plan created of the property and or the tenancy to be leased. You may also require a survey plan so that the lease area is totally accurate in preparation for tenant inspection and enquiries. If that is the case, get the survey done early so it is not a delaying factor in any lease negotiation. It is also of some help to the leasing agent to have an accurate plan of this type for the property and premises. The plan creation process is a cost to the landlord.
- Check out the boundaries of the premises and property; inspect the property comprehensively yourself. Ensure that there are no boundary or premises encroachments. Remove those problems before any lease marketing or negotiations start. Premises problems can slow things down considerably in a lease negotiation. Remove the problems at the start.
- Review the premises from a ‘tenant perspective’. Look at issues as any tenant would. Question things such as rent levels, lighting, floor coverings, wall finishes, lease conditions, and property availability. The property must present well in any inspection, so remove any visual problems and physical challenges that could have an impact on your inspections. Any problems that a tenant can see in the inspection are likely to be ‘discounting factors’ in any lease negotiation. Some landlords like to ‘hold back’ on the costs of premises preparation thinking that they can save some money or wait until a tenant is located; invariably that can be a big error as the ‘first impression’ that a tenant gets from the property will make or break any lease offer.
- The landlord should have considered and created standard lease terms and conditions that are required for any lease negotiation to start. Those facts will also be required in the marketing and advertising of the vacant premises. Ensure that the asking rent is in keeping with the comparable properties locally and the other asking rents in the area.
- Understand how the tenant will connect into the building services and amenities. That connection process will include water, lighting, electricity, drainage, and communications. There will be ‘risers’ in the building to allow the tenant to connect. You may also need engineering comment and ‘as built drawings’ to help that process occur.
Simple things like these help the momentum in any lease marketing process of an office building or office premises. Preparation is the key. Get the facts before you, know the property market, and then understand the client’s requirements and the property.