People are approaching how they use office space differently than they have in the past, says Ronald J. Gantner, CPA, a partner with Plante Moran CRESA. And this has changed how buildings are designed and renovated.
‘The generation coming up in the work force wants more collaborative space, with fewer walls and greater technology infrastructure,” says Gantner. “Some buildings and landlords have adapted, some have yet to catch up, and others may not be able to create the environment today’s tenants are demanding.”
Finding the right building for your needs and determining which is the most affordable — and that is not necessarily the one with the lowest rent — can be challenging and time consuming. But you don’t have to go it alone. An experienced tenant representative can assist you through the process.
Smart Business spoke with Gantner about tenant representatives and how they can help you navigate the real estate market while you stay focused on your business.
How have the changing needs of businesses affected office real estate?
In the real estate business, we used to talk about price per square foot. Now buyers are looking at the cost per person or the occupancy cost per employee. This creates an opportunity to accommodate more people within more flexible spaces and reduces tenants’ demand for square footage. We’re seeing more maximization of space or greater efficiency in the way space is used, which will drive down cost.
From a landlord’s perspective, buildings need to adapt and be smarter to recapture rent. A significant cost of space build out is related to the technology that our new wireless, high-tech workers demand. Existing buildings with a strong technology backbone are going to command a higher rent as this offsets improvements that would need to be made to bring another space up to par. More flexible and collaborative space will create a higher demand. Everything from WiFi in common areas and cafeterias to flexible space with lots of parking sets the best buildings apart.
Some market areas don’t have a lot of quality buildings that can be easily retrofitted to accommodate what today’s tenants are looking for. Tenants may discover the list of great opportunities is shorter than the recent high vacancy rates may imply. Rent is only one component of your total occupancy costs. Ultimately, tenants don’t want to put much capital into a nonperforming asset. Instead, they want to invest it into their core business because it will result in a higher rate of return.
How can a tenant representative help?
A tenant representative is an advocate for the tenant. Often tenants can get hung up on a great real estate deal and fail to analyze whether it is a good business deal. A representative will show you all of the options that make sense to your business from a real estate, financial and strategic perspective. It might seem attractive to only pay $15 per square foot for the real estate, but it could cost $100 per square foot to upgrade the space to work for the client. They look at aspects beyond rent, including the cost to move and build out a space, as well as the surrounding amenities to present you with the top options based on your needs and budget.
How important is the tenant representative’s ability to be independent?
It is extremely important to work with someone who is not incentivized by a landlord to lead you in a particular direction. Using an independent tenant representative will avoid conflicts of interest and show you all the options that make sense for your business. Having an advocate sitting only in your corner is also valuable in negotiation.
What are the dangers of conducting the search for office space on your own?
Tenant representatives are involved in numerous transactions on a daily basis. They have extensive knowledge about the market and what to look for in a real estate contract, and even help ensure your lease has flexibility for expansion or contraction. Tenant representatives have learned best practices over hundreds of transactions and years of experience, while comparatively, most business owners will be learning as they go while deflecting efforts away from their business’s core functions. And if you make a mistake, it can be very costly for a long time to come.
Can working with a tenant representative lead to a better deal?
Absolutely. Tenant representatives know the market, the transactions that are happening and what capital dollars landlords are spending to entice tenants. They also know the capital structure of the landlords who own the building you’re considering.
In the past years of the economic downturn, landlords have lost buildings or remain troubled financially. Tenant representatives can educate the client on these situations, which may range from a decline of property maintenance services or even foreclosure.
Once you are into a building and the property and facilities are not tended to properly, it impacts a company’s ability to do business. So it is not only pricing, it is making sure you are in a suitable location where you can conduct your business relatively worry free.
How do you select a tenant representative?
The important thing is to begin the process early — at least two and a half years before your lease expires. Also, talk to two or three providers. Look for firms that have independence or that work only on behalf of tenants. Talk with them about their process, look at their financial capabilities and work to understand the P&L impact of these real estate transactions. You want a firm that can handle your space planning needs while working to get the best pricing for the property.
Ronald J. Gantner, CPA, is a partner with Plante Moran CRESA. Reach him at (248) 603-5257 or email@example.com.
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