Guide to Office Space Tenant Representation

Your primary business is running your company, so hopefully, you don’t have to lease new office space or negotiate renewals more than every 3 to 5 years or so. Usually businesses lease office space only a few times in over the life of the company, while landlords on the other hand lease office space over and over again.

In most cases, landlords hire a listing agent to help market the property and advise them. Do they have an unfair advantage? You bet they do!

Balance this unfair advantage by engaging the services of your own qualified tenant representative.

Many tenants think that by hiring a tenant representative they will end up having to pay more in rent. When it comes to negotiating for office space, a good tenant rep will not only save you money, but will also make sure you don’t make any critical mistakes in the leasing process.

When deciding whether to use the services of a tenant rep, consider the following:

1) Real estate fees of typically 4%-6% of the lease amount are built into the cost of the lease

2) If you do not have a tenant rep, the landlord's (listing) agent will keep the entire commission...

3) If you hire a tenant rep, the commission fee is split between the listing agent and the tenant rep.

4) The listing agent represents the landlord, and will always have their best interests in mind.

5) Not having a tenant rep will most often not save you the commission and you will most likely pay much more for your office space.

For most companies, real estate is their second-largest expense after payroll, and every dollar saved on your lease goes directly to your bottom line. Landlords will always look for the highest possible rent for the longest possible guaranteed term. Tenants typically want the lowest possible rent and the greatest lease flexibility. An experienced tenant rep will develop negotiating leverage and help you to get into a lease drafted in your best interests - not the landlord's.

Action Steps
The best contacts and resources to help you get it done

Find the Right Tenant Rep for Your Particular Situation

When choosing a tenant representative, always go with a broker that exclusively represents tenants, as this will prevent a possible conflict of interest. The best tenant representatives are business consultants that specialize in real estate, and you want them to understand your business; budgets, growth projections, employee and visitor use of space, for example. Also it's important to look for a tenant representative that can take control of the process at the right times and has experience as a tough negotiator. They need to know how to raise the right issues and questions and at the same time facilitate a well thought-out decision process. Try to work with a tenant rep offering experience closing deals on the specific type of office space you are looking for. It's important your broker has enough deal making prowess and market savvy to deliver on the particular type of space your business requires.

I recommend: OfficeFinder is an information source and referral network of office space leasing experts.  OfficeFinder offers visitors the ability to find an office tenant representation expert in over 500 markets worldwide, as well as valuable tools such as an Office Space Calculator, and an Office Space Planning Checklist.

Analyze and Define Your Space Requirements

An experienced tenant representative can assist you in calculating your actual need for space and determining your company's particular layout requirements. Your tenant rep can help you to evaluate your space plan and maximize the efficiency of space usage, which may decrease your rentable area . A landlord obviously has no incentive to assist you in increasing your economy of space and lowering your lease costs. By knowing your space plan, and therefore your business requirements, your tenant rep will also prevent you from wasting time on property negotiations that are not right for your organization. As part of the process of defining your space requirements, you should also consider geographical areas, the quality of space desired, the image you want your new space to portray, and how that ties into corporate objectives. An experienced tenant rep can be invaluable in that process, as well as help you to calculate the possibility for future expansions.

I recommend: BusinessWeek has recently released a series of special reports on workplace design and productivity:

Do You Work in a Zoo?
Rethinking the Office Environment
Enabling Innovation Through Office Design
For EMI, New Space Reflects Changing Times

Investigate Properties and Determine Top Alternatives

This involves more than scanning the available listing services. A professional tenant rep can identify a property that is not an obvious choice to meet your needs. This could result in lower rental rates and space that is otherwise better suited to your needs. An experienced tenant rep will have a general market knowledge of 'deals' available, and will verify the terms and conditions associated with each property. A tenant rep will help you narrow down the alternatives, and schedule tours with the top properties that meet your requirements. After touring the different locations your tenant rep will help you go over space plans as they relate to each property, and help narrow down your decision further, usually to a few alternatives. The tenant rep will request proposals from those properties, and perform layout efficiencies and financial analysis on the responses. At that point the tenant representative will help you to choose the top alternatives and prepare to make offers.

I recommend: OfficeFinder offers valuable office space market information for hundreds of markets worldwide, a wealth of information about issues relating to office leasing, including this detailed overview of  The Leasing Process, and this guide to Measuring Office Space.

Create a Bidding War Among Landlords

A good tenant rep knows that creating competition for your business will maximize negotiating position, and will try to start a bidding war among landlords. The result can be concessions and incentives that exceed the norm in the marketplace, such as free rent for several months or an allowance for tenant improvements (TIs). The tenant rep will protect your interests during lease negotiations, act as a buffer between you and the landlord, and ensure that you come away with terms that meet your present and potential future needs. For example, a tenant rep would ensure you retain such options as subletting in case you eventually downsize or outgrow the space. A professional tenant rep is familiar with real estate forms and documents, and having them prepare all proposal requests and letters of intent can help resolve issues before the final lease is prepared, and help you avoid signing something by accident or out of ignorance.

I recommend: The following posts are by a tenant rep at  corporaterealestate.wordpress.com:

The Under-Utilized Tenant Rep
Are You Being Served… More Expenses Than You Deserve?
What if someone gave you $50 per square foot to remodel your home?
There’s gold in that contract - how to find hidden value in your office lease

Engage a Tenant Rep for Lease Renewals

Most experts agree that the services of a tenant rep during a potential lease renewal can be even more important to the tenant than the initial deal. Renewals are usually a difficult process for a number of reasons. Often landlords feel they have provided quality services and amenities during the initial lease term, and that an existing tenant should not require the services of a tenant rep for a renewal offered at 'market rates.' What landlords don't want you to know is renewals 'at market' usually result in a huge windfall for them. A 'market renewal' rate means the landlord gets a rrate that is intended to cover the costs of constructing new space. However, landlords incur little or no construction expense for most renewals. A landlord may spend $50 per square foot to build out space for a new tenant. However, the same landlord may look to spend $5 per square foot in rehabbing an existing tenant's space, yet still charge the tenant current market rate of $50 per square foot.

I recommend: OfficeFinder is an information source and referral network of conventional brokers and Office Business Center owners in over 500 markets worldwide.  OfficeFinder also has a great deal of information about issues relating to office leasing, like this article about Tips on Using a Tenant Representative

Tips & Tactics
Helpful advice for making the most of this Guide

• Make sure your tenant rep specializes in working with tenants ONLY. This will prevent any possible conflicts, and ensure your interests are represented, not the landlord's.
• Consider signing an exclusive agreement with your tenant rep, IF you are comfortable working with them, and there is a short-term out clause in the agreement. Signing an exclusive will show the landlord you are serious, and the tenant rep that you are committed to working with them.
• Even if you are not planning on moving, always engage a tenant rep for lease renewals. Landlords regard renewals as a captive market, so there is less inherent leverage for the tenant. A renewal at 'market rate' without considering alternatives and re-negotiating is rarely if ever in your best interest.
• Involve your tenant rep in issues that may arise after the lease has been signed. A tenant rep is more than a space finder, they can help you with disputes that may come about after the lease has been signed. If there are any doubts, have them perform a lease audit to ensure you are not being overcharged for expenses.
• Hire a real estate attorney as well as a tenant rep. Your attorney has the legal skills and background to ensure the transaction is in order from a legal perspective. Your tenant rep has the specialized knowledge of space planning, market information, and lease negotiations. For a successful outcome, you need both of these professionals on your team.