For some, finding the commercial real estate (CRE) that best fits their space needs, location, price point, and amenity wishlist may seem daunting. Others throw themselves into this process head first, excited about the prospect of discovering a new space for their business endeavors, and then sealing the deal. Whichever group you’re in, having tenant representation on your side to guide you through property comparisons, needs assessments, and detailed lease negotiations is not only invaluable – it’s been shown to save lessees thousands of dollars.
What is Tenant Representation?
When CRE landlords lease space, they hire a leasing group (brokerage firm) to represent their best interests. These include marketing, negotiating, and securing a lessee under contract. This is done to ensure that landlords’ costs are covered and that they profit from lease agreements.
Tenant representation, on the other hand, is about representing the tenant who is looking for office, warehouse, manufacturing, or other commercial space. Tenant representatives serve tenants for free. This may seem too good to be true, but in reality, the process is set up to protect the tenant. Here’s how it works: the listing brokerage firm signs a contract with the property landlord. If no tenant representative is hired by a tenant, that listing broker gets the entire negotiated commission fee when a lease is signed.
However, when a tenant representative is present, the commission is split with them. In other words, your landlord pays for you to be represented by an industry professional.
That’s just the tip of the iceberg when it comes to the benefits of hiring a tenant representative.
Benefits of Tenant Representation
Works for You – and Only You
Tenant representatives are solely there to protect your interests. They help you avoid leases that work great for your landlord but leave you stuck with a less-than-ideal contract.
If you decide to go it alone, landlord representatives are incentivized to negotiate a lease that benefits their boss but may include terms that are bad for you. These may include hidden fees, above-market pricing, and space specifications that don’t fully align with your business needs.
Your tenant representative, on the other hand, only has you and your business in mind. This means that they work with you to get the best lease terms, options, and space to meet your needs. For instance, if you’re considering bringing warehousing in-house, your tenant representative may recommend a multi-functional flex space so that your space needs are met for the entire duration of the lease, even if you haven’t made a final decision on the matter prior to signing the contract.
Negotiates to Save You Thousands
Saving just a dime per square foot on a 5,000 square foot facility puts over $10,000 in your company’s pocket for a two-year lease. Direct savings like this can be the outcome of your tenant representative’s market research. This gives you valuable leverage in the form of alternative leasing options. They can be brought to the negotiation table to get you the best deal.
Just as importantly, your tenant representative understands all the hidden costs of leases, such as:
- Overage Fees if building operating expenses exceed the projected building budget
- Load Factor Fees for areas that don’t actually meet the criteria for rentable square footage
- Excess Administration Fees that are often tacked on to Common Area Maintenance (CAM) fees
Tenant representation informs you of all your lease obligations so you don’t have any surprise expenses. Whether you’re new to leasing or are interested in relocating, expanding, renewing, or taking advantage of your current lease options, having an advocate negotiating on your behalf is invaluable.
Provides Expert Space Needs Analysis
More than any other area, tenants miss the mark when assessing their actual space needs. They do tend to consider the desired environment and locale of the commercial space they’re seeking. However, they fail to apply deep analytics of business processes, staffing, clients, and future plans. A tenant representative will use interviews, company data, and software tools to look at:
- How your company functions
- Expansion or contraction plans
- Your workforce
- Your customers
- Space criteria you have
- Your location criteria
This space needs analysis provides a much more sound strategy for moving forward in finding an ideal property for your business and negotiating the best lease agreement.
Researches Multiple Space Options
The creative space where you build and grow your products, services, sales, and systems is an integral part of what keeps your customers coming back for more. Tenant representatives understand this dynamic, and they are always on the lookout for exceptional leasing opportunities for you.
Another key part of their job is to find multiple properties that meet your business needs. They then perform side-by-side comparisons using market analytics to help rule out spaces that aren’t ideal, such as those that are above market value. Providing you with similar options is also a key way to optimize negotiations in your favor.
Offers Industry Expertise
Perhaps the most valuable skill tenant representatives offer is their industry knowledge. Navigating the world of leasing types, options, amenities, space configurations, costs, hidden fees, terms, and market trends can be overwhelming. Here are a few ways a tenant representative helps give you peace of mind during this process.
Guidance on Lease Types
Rent is one of the biggest expenses many businesses face each month. Managing this recurring financial obligation can be helped along by the right type of lease. For instance, while a full-service lease provides the most tenant protection by bundling all costs into one payment, it also offers the least flexibility. There’s no way to save on items like utility bills by cutting back on usage. A percentage lease, on the other hand, offers a more flexible option. It allows tenants to pay a lower base rent plus a percentage of sales. This makes it an attractive choice for those in financial recovery.
Everyone’s financial plans and situations are different. That’s why it’s important to get expert guidance that’s personalized to you.
Guidance on Lease Options
Just like with lease types, there are various lease options that can be written into your lease. They address different elements for which a lessee may require flexibility due to the unpredictable nature of business. Some of these include the options to:
- Expand or contract
The space needs analysis that your tenant representative performs is a great tool to guide you through the options you’d like to include in your commercial lease.
Guidance on Local CRE Trends
Trends in regional CRE can have a big impact on the price you pay for properties. For example, tenants looking for office space who are willing to sublease will do particularly well due to the large number of corporate lessees looking to unload space that was previously occupied by staff who are now working remotely. Tenant representatives keep on top of these market patterns. They use them to connect you with properties that meet your space needs while giving you the most bang for your buck.
3 Things to Look for in a Tenant Representative
1. Local Experience in Property Design, Sales, and Marketing
The more involved your tenant representative’s brokerage firm is in the design, sales, and marketing of commercial property in your community, the better they can guide you to CRE that best fits your space needs. Experienced local tenant representatives are able to quickly and accurately analyze and compare the needs assessment they perform for you against available local properties because of their insider expertise.
In other words, they are familiar with the properties that are on the leasing market.
Pro Tip: Ensure that you are well represented. Ask to see the sales and design portfolio of your prospective tenant representative’s brokerage firm.
2. Proven Negotiation Skills
While local market connections and expertise are important, the bottom line happens at the negotiating table. Ask about the latest deals your tenant representative has closed, and how many of those were in the type of commercial space that you’re interested in. You can also have a discussion about the various points of focus that will be discussed during negotiations so you get a better feel about what to expect.
Pro-Tip: Find out your prospective tenant representative’s relationship with local landlords; good relationships can be a negotiation plus.
3. Employment of Market Analysis Tools
A skilled negotiator’s best friend is market analysis. It provides them with the detailed information needed to successfully advocate for you. Your tenant representative decides what information to input into analysis software, but the tools themselves fine-tune these inputs and create outputs that allow for side-by-side property comparisons utilizing the most up-to-date prices, upgrades, features, and lease inclusions.
Pro-Tip: Ask what market research tools a tenant representative employs.
Whether you’re leasing your first property or are interested in moving into a space that better suits your needs, Speed Commercial Real Estate offers advanced market analytics, expert space needs assessments, and 17 years of experience in the Mississippi commercial real estate market. Contact us today to work with one of our local tenant representation professionals who will support, guide, and advocate for you through every step of the commercial leasing process.