According to commercial tenant representation specialists Tenant Advisory Group (‘TAG’), office markets resemble giant icebergs and are almost as dangerous.
TAG’s founder Martyn Markland believes that SME’s find it difficult to access the best deals on commercial property because the market lacks transparency and large amounts of available stock are hidden from view.
Markland cites one extreme case where a tenant is willing to sub-let its space at nil rent for the remainder of its lease which has over 5 years to run! “What is tragic is that recently a new tenant acquired landlord space in the same building with the benefit of just 12 months rent free. The new tenant has therefore missed out on nearly £400,000 worth of incentives simply because it was unaware of the tenant space available directly above it. That money could have provided employment for extra staff and helped the business to grow.”
Markland acts exclusively for commercial tenants and explains why he believes tenants need a better understanding of how the market operates if they want to minimise their costs. “A large part of our work involves sourcing new premises for clients. The challenge is that the best opportunities are quite often hidden from view.”
As Markland points out, people often fail to realise that very few tenants in multi-let buildings are permitted to erect a ‘To Let’ board on their property. This means that the majority of boards you see on buildings relate to space that a landlord is trying to dispose of. Increasingly of course, landlords are in competition with their own tenants who may be trying to sub-let or assign surplus space of their own. Markland explains, “it is extremely difficult for tenants in this situation to promote their space effectively as letting agents act predominately for landlords and can often face a conflict of interest.”
The tragedy is that the best terms are often to be found on tenant space rather than landlord space. This is because tenants are usually more pragmatic when it comes to striking deals. Landlords are often under pressure to meet interest payments or stay within certain loan to value covenants, so their room for negotiation is usually quite limited. Tenants do not tend to have the same constraints. Any deal that helps them reduce their contingent liabilities will be of interest to them. Their cost benefit calculation is therefore very different to a landlord’s.