Don’t settle on just any tenant rep broker. You want someone who will become a strategic partner. Here are five questions to ask:
- How much experience do they have? Commercial real estate can be a tough business, and the brokers that have stood the test of time have been there, done that. However, it’s not always the number of years in the industry that is important—you also need to consider the amount of deals they have done in their career. Brokers with specific real estate designations such as a CCIM have completed extensive coursework in financial and market analysis and are recognized as leading experts.
- How well do they know the market? You will want to look for a broker who is an expert in their market. An expert will have an accurate understanding of current and future real estate trends and be able to easily discuss how it relates to your real estate needs. This invaluable insight will give you more leverage when negotiating with a landlord.
- Are they resourceful? An established tenant rep broker will have existing relationships with other professionals that will be useful to you during this process. You don’t have to spend the time doing your own research if your broker has already vetted them for you. Space planners, real estate attorneys, and movers are just a few services you may need.
- Do they have a process and timeline? A well-designed process will provide structure to a real estate transaction. They should be able to tell you exactly the steps it will take to get from an initial meeting to a signed lease. A timeline will set expectations as your broker guides you through the complicated process of renewing or relocating.
- Do they understand my needs? You want to look for a tenant rep broker that will take the time to listen to what your needs are―both current and future. Sometimes what you think will be the perfect location or space might not be the right fit. They should be able to help you determine what you really need.
Do your research and ask for recommendations from colleagues and friends to narrow down your search. Pick a few brokers that you think will meet your needs and have a quick conversation with each of them. In addition to all the professional qualifications, look for someone who you actually like. After all, you may be spending quite a bit of time with them.
You know what to look for in a tenant rep broker, but do you understand the true value they will bring to a real estate transaction? In our next post we will explain the benefits of having one in your corner.
Hire a broker with expert market knowledge. Information is the most valuable commodity during real estate negotiations. Whoever has the most, wins. Having a market savvy broker in your corner will be your best defense in a landlord’s market. They can educate you on current market conditions and set realistic expectations.
Know what you want. You should go into negotiations with at least one objective. Think about what is most important to you―make sure you consider your long-term real estate needs. If your priority is low lease rates, you may want to focus on a long-term lease. If you are uncertain what your real estate needs will be in a few years, it may make sense to focus on flexibility with a shorter lease term. Sure, you may pay more by doing this, but you will have options should you find yourself needing more or less space in the near term.
Know your BATNA (Best Alternative to a Negotiated Agreement) before negotiations start. This is a term coined by Roger Fisher and William Ury in their bestseller, Getting to Yes: Negotiating Without Giving In. Your BATNA should answer the question: “What will I do if the landlord is unreasonable and/or I am unable to get a fair deal?” It’s kind of like having a Plan B. Your broker can work with you to determine alternative locations that could work for you.
Know when to walk away. It may be a little cliché, but its true. Even if this the property in the location you want, there may come a point where the deal just doesn’t make sense anymore. A successful deal is one where both parties are pleased with the outcome. If the landlord is happy, but you feel taken advantage of, it may be a sign that its just not worth it. This is the time to lean on your broker for advice―this is why you hired them.
You know you need to level the playing field by having a tenant rep broker on your side. In our next post we’ll give you five things to consider before you hire one
In 2019 commercial businesses in the Charlotte area and beyond that have leases that are up for renewal have noticed a lack of available alternative space options in the market, and that Landlord’s are asking for, and receiving large rental rate increases. This is a classic case of a Landlord’s market.
The question Tenants should be asking is how did we get to this point? In 2008 when the economy went into a recession, and the global financial markets froze, construction of new commercial space largely ground to a halt. Businesses chose to downsize and cut back their spending including the amount of square footage that they were leasing. As vacant space came back on the market Tenants with viable businesses suddenly had plenty of options to choose from, and Landlords began “blocking and tackling” as they tried to block any existing Tenant from leaving, and tackle any new Tenant that came by to look at their space. 2009, 2010, 2011, & 2012 were Tenant’s markets from a commercial real estate standpoint, and in hindsight it was a great time to lock in a long-term lease.
As the great Warren Buffet said “when others are fearful be greedy, and when others are greedy be fearful.” For most Tenants it was a tough time to be greedy with a fearful Landlord and lock in a long term deal due to the uncertainty they had in their own businesses so most Tenants rode the market down with short term leases and have been riding the market back up with short term leases. The downside of the short term lease approach in a Landlord’s market is that each time the Tenant comes back to the negotiating table the Landlord’s position has strengthened, and rental rates continue to rise and lease concessions like free rent and Tenant Improvement dollars begin to disappear.
At the same time general contractors where feeling the effects of the slow down in the construction industry as they were at times pricing work at cost just to keep their crews employed in order to stay in business for the future when the market turned positive.
As the market has improved over the last several years the space that was available was quickly absorbed. As Landlord’s gained more confidence in the economy and the demand for space they began developing new properties to meet the demand. As Landlords began to develop new space commodity prices for steel and other materials that are critical to commercial real estate development began to rise. The stronger economy and the increased employment opportunities that came with it also caused wages to increase in the construction industry, and a “war for talent” as contractors fought to retain their best employees.
A combination of a strong economy, a lack of available space, rising raw material prices, and rising construction wages have all come together to create rental rates that are rising at a much higher rate than the market standard of 3%.
The question is what should Tenants do to position themselves in a Landlord’s market. That is a question we will answer on the next post.