Tenant Representation - The Value of Using a Commercial Real Estate Broker
An experienced commercial real estate broker will offer clients a number of services. Among these are assisting the client with financing alternatives, with legal resources, with resources for design and construction and help with locating the numerous vendors required when leasing or purchasing a commercial property.
The primary responsibility of a real estate broker, however, is assisting his or her clients to buy, sell, or lease commercial properties. A good commercial broker understands a transaction from both the perspective of the landlord and the client.
Most office tenants are not Fortune 500 companies. They are small and medium-sized firms that go through the leasing process every five to ten years. Building owners, however, are generally not individuals or small partnerships. They typically are institutional investors that employ professional asset managers and property managers.
They hire their own “listing brokers” who employ a number of tools to closely monitor competitor’s lease terms and conditions. They are aware when rental rates change, when concessions are being offered, the amount of tenant improvement allowance offered for comparable space in the market, etc.. Tenants that retain their own broker level the playing field by gaining access to the same critical market information. Tenant representation brokers know the nuances and hot points that will best serve their client in a negotiation.
The tools and technology available to commercial brokers today has grown exponentially over the past few years. They now have access to commercial property information databases, financial analysis software, geographic information system programs, etc. that were not available until only recently.
Typically small companies are inexperienced when it comes to leasing new space. A “tenant rep” broker can assist in answering a number of questions before embarking on a search.
Among these are:
1) How much space is needed?
The industry benchmark is 200 square feet per employee for traditional office. Attorneys, doctors and other professionals often require 250 square feet or more. Companies that utilize large “bullpens” or open areas may require only 100 - 150 square feet.
2) What is the ideal layout?
How will the space be used? How many workstations, private offices, storage areas, and conference rooms are needed? Is the company culture one of open space or private offices? Does the company need a kitchen, reception area, or other specialized space? If not provided by the building owner, brokers will direct their clients to space-planning specialists or architects that are familiar with their client’s space needs.
3) What length of lease will the company commit to?
The broker can explain to their client the benefits and the drawbacks associated with the length of lease terms.
4) What image is the company seeking?
The broker can explain the rental cost associated with different locations. Location and amenities say a lot to company clients, both positive and negative.
Lawyers, doctors and other professionals may require well-appointed offices, while others may seek “plain vanilla shells” so clients won’t feel that hourly fees are paying for the wood-paneled elevators.
5) When is the company’s moving date?
Brokers need time to locate space early enough to be able to maximize their clients negotiating positions. As a guideline, locating and negotiating space will require between six months and a year and a half, depending on size.
6) What growth does the company anticipate?
Should an option on adjacent space be part of the negotiation? Or possibly the ability to relocate to another floor or landlord property?
Perhaps a lease termination or “buy-out” clause should be considered.
7) Is sublease space a possibility?
Although cheaper, sublease space may require that the client adapt to a less than ideal layout.
Information is power. Business owners or investors with great negotiating skills may overlook the fact that they need market knowledge to increase their negotiating leverage. Access to local market data is essential before entering a negotiation. It is comforting for these owners to know that their real estate decisions were based on weighing complete and accurate market information.