SMEs looking for new commercial space or to renegotiate a new lease for their existing premises are being urged to plan ahead, since longer lead times boost the negotiating power of would-be tenants.
Colliers International’s manager of tenant representation and corporate solutions, Sarah Hughes, said there are many simple things that SMEs can do to lead the charge during lease negotiations, and has provided a list of her top seven tips.
“Whilst some of the tips may sound obvious, these are points that we are constantly raising with SMEs,” Ms Hughes said.
She suggests business operators avoid repeating the mistakes of many of their SME peers by following this advice:
1. Start the process early.
“The longer you have to evaluate property options, the more ‘power’ you have during negotiations,” Ms Hughes said.
“We always recommend allocating a minimum of nine months for the entire project for small ﬁrms.”
2. Understand your space requirements
“Undertake a space analysis to determine your optimal size based on your speciﬁc requirements. An analysis can be undertaken by a designer, space planner or architect.
“Even an additional 50 square metres can make a huge difference to your total costs over the lease lifecycle.”
3. Thoroughly evaluate the market
“One mistake tenants often make, especially when they are looking to renew their lease, is not creating negotiation leverage in the market,” warned Ms Hughes.
“It is critical your landlord understands that you have compelling alternatives, and that you can and will relocate your office premises.”
4. Compare property options on a ‘like-for-like’ basis
“What may appear to be the best deal on the surface is not always the case after a detailed evaluation of all cost factors,” Ms Hughes said.
“In some instances, a landlord may not include certain expenditure items in their estimated outgoings during the Heads of Agreement negotiations and this can come as a shock when a tenant receives their ﬁrst invoice.
“Make sure you have visibility of all costs from the outset.”
5. Consider renewal options
“A lot of occupiers think of this as a ‘later problem’; however, an option provides a tenant with a degree of protection in terms of their tenure and legal interest in the property. Without an option, your landlord is not obliged to grant you a new lease over your premises.”
6. Build ﬂexibility into your lease
“Include expansion rights, space reduction and options to break the lease at certain intervals," Ms Hughes adivsed. "Additionally, ensure you have the ability to sublet or assign your lease.
“It’s often hard to forecast growth (or contraction) with business conditions rarely being static, so it’s important to mitigate potential risk from the outset.”
7. Retain qualiﬁed representation
“The landlord’s agent has a ﬁduciary responsibility to the landlord and will therefore want to achieve the best possible deal for their client. Who is acting in your best interest?” said Ms Hughes.
“A tenant adviser has your interests as their ﬁrst priority and can ensure the right business decision is made whilst saving you time and money and mitigating any risk.”