Commercial tenants in Melbourne leave too much money on the table: Simon Gunnis
Melbourne CBD office market is moving firmly in favour of tenants, with independent analyst BIS Shrapnel recently reporting an expectation that commercial vacancy in the Melbourne CBD will hit 10% by year end, challenging commercial rental levels and driving greater incentives from landlords.
With the ball now firmly in the tenant’s court, why then are Melbourne tenants 50% less likely to seek independent advice in negotiating a lease in their own favour?
There has never been a better time for Melbourne’s tenant community to negotiate or renegotiate a commercial lease, but so many unsuspecting tenants are leaving a lot of money on the table by not fighting harder for greater value in their lease negotiations.
Business owners who might be very commercially savvy, don’t work in the commercial property market day to day, so they are not familiar with the smart ways to work with a landlord to reduce costs and leverage their lease covenants to benefit their organisations”.
Melbourne tenants seeking new sites and workplaces are reaching out to us, asking how they can capitalise on the rising vacancy trend they see coming and we are starting to see a significant desire for guidance through the site selection and negotiation process.
In Victoria, nearly 70% of tenants negotiate their lease without professional help according to PCG. This is probably expected in a rising market, but as markets fall, tenants become more commercially savvy, and chase greater bang for their buck, so we are watching this trend slowly start to shift.
Melbourne’s low representation rates are a disparity with the rest of the country. In Sydney, more than 95% of tenants are represented by independent tenant advisers, and Brisbane where 75% are represented.
And evidence shows it is worth their while. In our experience, engaging a tenant representative to negotiate on your behalf can save between 20 to 30% of the total property commitment cost. And that money can go right back into the pocket of the tenant… rather than deeper into the Landlord’s pocket.
What everyone forgets is that the commercial or industrial leasing agent is an agent working purely in support of the Landlord. His or her commercial agenda is diametrically opposed to that of the tenant. His or her interest in the tenant extends only to getting the lease done at the maximum price with the lowest incentive possible.
In other states, a tenant representative is engaged by more than 90% of tenants, which makes more sense given the long term nature of a commercial property lease.
I don’t understand why a tenant wouldn’t seek independent property representation in this day and age… The agent simply isn’t on your team, and there is no industry body that looks after the tenant in Australia.
Even Corenet Global, the industry body for commercial real estate says their charter is about 'Real Estate Professionals' not 'Tenants'.
But I ask you, who looks after the tenant? It’s about time somebody did… I guess that’s our job.
Simon Gunnis is the CEO of real estate advisory specialist PCG.
