Your location is your most valuable asset. It provides access to your customer population and infrastructure for your fixed assets. Most operations are located in leased space which is dependent on a landlord-tenant relationship. Over the past 20 years, several remarkable changes have permanently changed the tenant’s ability to manage its location. A well-informed tenant must recognize and respond to these changes.
The commercial real estate industry has changed significantly. It used to be the landlord was a person who owned a building with a relatively small number of tenants. You knew the landlord personally, and knew that the landlord needed your tenancy. That large community of small landlords have sold their holdings to a small community of very large landlords who have accumulated vast property holdings. This has quite a significant impact on the tenant.
First, your negotiating power is now significantly reduced. In many cases, you are just one in thousands of tenancies. In short, many current landlords could not care less if you threaten to leave. Manulife Real Estate, for example, controls 38,700,000 square feet of property. A 1,500 square foot tenancy represents .0039 per cent of their portfolio.
Second, large landlords set their rent on the basis of investment return rather than what the market bears, knowing that in many markets, tenants have nowhere else to go.
Third, contemporary plaza design favors large “big box” style regional plazas which provide little or no space for tenants smaller than 5,000 square feet.
Fourth, instead of dealing with the landlord, you now must work with a leasing manager. You are one of thousands of tenancies for which they are responsible. Your leasing manager has a budget for vacancy and may not be motivated to return your call.
The tenant community has changed significantly. It used to be your co-tenants were private, owner-operated enterprises with bargaining power equal to small, private, landlord ownership. Many independent tenants are being replaced by chains and franchises with hundreds, if not thousands, of locations. These companies can pay higher rent and are supported by in-house real estate professionals to deal with sophisticated leases and landlords. Almost every real estate development already has a tenant offering your service or product. Several tenants offering the same service often bid for a single space, creating a demand that results in a negative negotiating position. Landlords translate this reality into complicated lease terms and conditions.
Tenant representation has changed significantly. It used to be that your real estate agent found you a spot, you had a chat with your new landlord to agree on tenancy terms, your lawyer reviewed the proposed lease, you signed and were on your way. Just as the leasing industry has changed, so has the tenant representation profession. Tenants are no longer able to “do their own lease” because contemporary leases, and landlords, are much more complex. You need a professional advisor, with experience and expertise equal to the landlord, who is able to negotiate from a tenant-centric perspective. There are a few options to consider when deciding who will best represent your interests.
Boutique consulting firms are small, specialized lease consulting firms providing professional services. They offer superior performance and service based on their professional qualifications, education and personal experience with many thousands of files. These firms typically operate under an ethical and professional corporate philosophy, providing excellent results.
Large brokerage firms are another option. Divisions of the firm will broker properties in exchange for a commission paid by the landlord. Will you be introduced to the entire library of stock available in your trade area or will you only be shown that firm’s listings? Other divisions will offer Tenant Representatives who market their service as superior knowledge of the real estate market based on their close association to their ‘listing counterparts’. However, the terms and conditions of your lease, not the real estate market, are what’s important.
At the end of the day, regardless of which tenant representative you choose, it boils down to one key issue: Is the one person who will be completing the negotiation on your behalf the right fit for you? Trust your instinct.