By: Don Bain, Jr., executive vice president, Jones Lang LaSalle, Great Lakes Region
Real estate is one of the largest expenditures an organization incurs, thus warranting a formal, strategic process to making sound decisions. As you approach your current commercial lease renewal, give your organization the best chance at negotiating a favorable agreement and selecting a property that best meets your needs.
To accomplish this, consider using a corporate real estate broker to assist you in the research and negotiation process. Why?
1. Brokers have expertise in the market.
Not only is keeping tabs on the local real estate market difficult for tenants, but doing so may distract you from your business at hand. Tenant representation brokers—those who help you as the commercial property tenant in your lease negotiation process—however, are immersed in the industry, trends and market fluctuations, and have knowledge of openings and opportunities of which you may be unaware.
Think about the professional services your company already outsources—such as accounting or legal counsel—that are not included in the specialized skills of your organization. This is done to increase efficiencies and decrease expenses incurred.
The same should go for real estate, which typically ranks as the second or third largest expense on operational balance sheets.
“While you understand your business objectives, plans and big-picture factors that may affect your real estate needs, brokers have the expertise to work with you and translate these criteria—along with local market variables and knowledge—into an actionable, strategic real estate investment plan.
2. Brokers have access to better information.
Similar to the previous point, brokers are tapped into a network that provides them with real-time market knowledge. Even if someone in your company is familiar with transactions, unless their job is 100% real-estate focused, they are not likely aware of the best options at any given time.
For example, professional, commercial real estate brokers here at Jones Lang LaSalle have access to:
- Proprietary research developed and interpreted by a staff of 350 local, national and global professional researchers
- Market comparables of recently completed deals
- Proposals from landlords and transactions not completed
A broker’s access to in-depth data and research, coupled with experience in applying this intelligence across a wide range of client sizes and industries, can be used as leverage in your negotiations—even if you are not considering an actual relocation.
3. Working with a broker enables you to be proactive, rather than reactive.
Because tenant rep brokers are watching the market on a daily basis, they are able to provide you with continuous updates on market trends and opportunities. Developing a relationship with a broker will help you stay informed about new opportunities as they arise, and often provides the leverage your organization needs to structure the best possible lease package.
4. Brokers save you time.
Consider the time it would take you to research the market, narrow down options and negotiate with your landlord, as well as the many other activities involved in an effective lease renewal. Using a broker eliminates the amount of time taken away from your work, and helps you focus on the assessment of your organization’s real estate needs.
5. Brokers save you money.
Brokerage firms exist because they save clients time, money and risk. Using expert advice enables you to secure a lease agreement that benefits your organization and its business goals.
Think brokerage service fees are too expensive? Often, these fees are paid by your landlord, with the cost budgeted into your rental agreement. Should you choose to use the broker’s services, you are simply accessing a market fee that will be paid as part of your rental transaction.
Sometimes, landlords will dissuade tenants from using a broker by offering to pay them the amount of the service fee. Even if your landlord is willing to pay this amount over to you, consider how much could be lost in the negotiating process if a broker is not used. According to our research, a broker can save you an average of five times the cost of their fee.
6. Brokerage firms support organizations with needs in multiple markets.
If your company runs operations in multiple locations, a strong brokerage firm can serve your needs from a central location. Rather than seeking a partner in each market, find a national or global firm that works with multi-city tenants. The firm can provide you with a global account manager who serves as the main point of contact, connecting you with brokers and information in each market to find the best opportunities available.
This also helps your organization have a more clear understanding of its entire real estate portfolio and costs, which can get messy if local decisions are all left to individual markets.
7. Not using a broker benefits your landlord.
Giving your landlord the impression you’re not using a broker can harm you in the negotiation process. If he or she believes you are comfortable in your current space, he/she will assume you are satisfied and willing to accept their increases. And, he or she may be less inclined to bargain with you for items like more flexible agreement terms, rent, new amenities, or updates to your office infrastructure or technology. Why else would they pay you not to use one? (See #5)
8. Brokers have expertise in handling specialized needs.
Broad-based brokerage firms offer the additional benefit of providing full-service real estate services to clients. This may include knowledge and experience in special real estate segments, such as build-to-suit facilities or environmentally friendly properties.
If your company requires a specialized lease or property arrangement, partnering with a large firm may also reduce unneeded expenses incurred from inaccuracies or oversights in project management—as well as take this burden off your team.
“A broker will work with you to strategically evaluate all your options and associated costs, and help you come up with the most cost-effective solution that will achieve your business goals.”
Broker Benefits in Action
Here’s a story of a recent client engagement that showcases some of the above benefits:
The client’s controller asked the local branch manager to use Jones Lang LaSalle for their upcoming lease renewal. However, the branch manager had a longstanding relationship with the landlord, and felt that he could save the company money by negotiating the lease himself. He negotiated a $12,500/month deal with the landlord, which he felt was a good price and also resulted in savings by eliminating a 6% brokerage fee.
Though I fully respect the tenant-landlord relationship, I suggested to my client contact that they “test the market.” To do so, we compiled a list of properties and sent out a Request For Proposal (RFP). This accomplished two key objectives:
1) Provided an opportunity for other landlords to compete for the tenant.
2) Required the current landlord to also compete for the tenant.
The result? The client elected to remain in their current space, but through this enhanced negotiation we reduced their lease agreement to $10,500 per month—including our 6% brokerage fee. In this case, the landlord netted $9,870 instead of the $12,500. This is quite a savings for the client, and ultimately resulted in a sound business decision to stay in their current space.
The Bottom Line
Even if your company has the ability and resources to assess your property needs, research the market and negotiate a better lease agreement, you should still weigh out the benefits of opting for professional services to support one of your largest expenses.
Are you aware of the expenses associated with negotiating your lease agreement? Did you realize all that your company stood to gain through increased efficiencies and a more favorable agreement through utilizing a brokerage service? We welcome your thoughts and feedback in the comment section below.
For more information on the benefits a broker can provide in your commercial lease negotiations, download our white paper, Top 10 Reasons to Use a Broker. This paper includes more detailed insight and specifics to keep in mind, based on Jones Lang LaSalle’s global knowledge base. We hope it serves as a helpful reference resource as you more forward with your lease planning.
Don Bain is executive vice president for the Great Lakes Region of Jones Lang LaSalle and is responsible for providing real estate transaction representation to local and national industrial clients. View Don Bain’s bio or connect with Don on LinkedIn.