Natural Disaster Planning for Commercial Tenants

January 20, 2011 Leave a Comment

This latest article from Parallel Directions is extremely timely considering all the flood damage Australia is experiencing and also the on-going aftershocks in Christchurch.

The impacts of natural disasters on people around the world and close to home have been top of mind for us all in the past few months.

It brought home to me how vulnerable we are wherever we live and work.

I had a personal experience working with relocating businesses affected by the Christchurch earthquake, and it gave me a firsthand experience of how devastating this sort of disaster can be. And of course those impacts are continuing with the ongoing aftershocks.

Read the full article at: http://www.officeblog.co.nz/natural-disaster-planning-for-commercial-tenants

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Rent is Never a Fixed Cost

September 17, 2010 Leave a Comment

It is very easy to take things for granted and make assumptions in business.

Even successful and smart business leaders can make the wrong assumptions about basic costs. I think sometimes the mind can play tricks on us too, and we can browse a set of accounts or a written article and miss some details that we either think are irrelevant or that we don’t want to know about.

Read the full article here: http://www.officeblog.co.nz/rent-is-never-a-fixed-cost

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Their job is to take Property OFF your Worry List

July 5, 2010 Leave a Comment

Parallel Directions Ltd is a commercial property consultancy that represents & advises commercial tenants and owner-occupiers across the office space, retail & industrial property sectors.

Targeted property solutions

We employ a suite of world-class systems to deliver property consultancy services and advise you on how to leverage strategic opportunities from your properties & leases. We help align real estate with your business plan, delivering maximum cost savings and operational efficiency.

Read more at: http://www.paralleldirections.co.nz/

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Making Sure your Lease Contract is Weather Tight

June 2, 2010 Leave a Comment

Adverse weather conditions can put enormous pressure on even the best of tenant/landlord relationships.

I’ve already dealt with one situation this week where water damage has soured relations between tenant and landlord to the extent that they are exchanging lawyer’s letters; each party is blaming the other for the problem.

The fact is bad weather is nobody’s fault. It is beyond our control. Nature, in all its elements, can take an enormous toll. We just have to look at the impact of the volcanic ash cloud on travel in Europe and Britain last month.

So when we strike heavy rain and wind like we’ve had up and down the country in the past week, even supposedly weather-tight buildings can be affected.

It is fair to say that we are all particularly nervous about water getting into buildings these days after the leaky building debacle.

But the reality is there are responsibilities for tenants and landlords alike when bad weather hits.

It is the landlord’s responsibility to keep premises watertight, with drainage, waterproofing and all the correct structures in place. And in many tenancy agreements, it is the tenant’s responsibility to maintain gutters and drains to ensure they are kept clear.

The key point is that both parties need to be clear about their responsibilities and make sure they are met. A healthy dialogue helps to head off any problems before they become major.

It sounds very straightforward, but amazingly I frequently deal with complete breakdowns in communication that could have been averted through conversation.

It is smart thinking to build strong relationships between landlord and tenant to avoid costly legal disputes and delays in righting any problems with premises.

Quick resolution of an issue such as water damage means business tenants can get on with their core business and landlords can continue to receive a steady income from their investment.

Source: http://www.officeblog.co.nz/making-sure-your-contract-is-weather-tight

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New Trend in Commercial Property Leasing

April 15, 2010 Leave a Comment

In the past few months I’ve noticed a definite trend towards organisations searching for new premises.

A year ago, this was not the case at all. The bulk of our work then was negotiating rent reviews and lease renewals. People were still nervous about making decisions in recessionary times.

What’s also interesting is that we are now seeing more and more new clients who previously would have taken a DIY approach to managing their commercial property leases and negotiations.

Executives are increasingly recognising that property is more and more complex and involves significant risk. They see the value in outside expertise such as that offered by us at Parallel Directions Ltd.

That value is tangible and can be directly related to profitability and direct return on investment.

Take for example a franchise
A franchise holder may have plenty of expertise in the product or service they offer, but know little about the complexities of searching for premises and negotiating a commercial property lease. The biggest pitfalls are the ones people are completely unaware of.

There are known unknowns… things that we know we don’t know. But there are also unknown unknowns… things we do not know we don’t know. It is the latter category that tends to be the difficult ones.
- Donald Rumsfeld

The risks involved really struck home when I told one client that the entire profit from their franchise over the 3 year period of a property lease could be completely wiped out by the tough “make good” clause.

This is the clause that requires a tenant to restore the property to the state it was in when they signed the lease. It can involve huge costs, such as removing partitions and all alterations made during a fit-out, relocating lighting and air conditioning, and painting and redecorating parts of the property that may have changed during the term of the lease.

So while many organisations have personnel with some property management expertise, there are a large number of increasingly complex matters that many are unaware of and therefore unprepared to handle effectively.

As I often say, smart management of property leases can have a significant impact on profitability. In complex and increasingly volatile environments, it pays to have the right expert advice.

Source: http://www.officeblog.co.nz/new-trend-in-commercial-property-leasing

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Negotiating a Commercial Property Lease

March 31, 2010 Leave a Comment

The first thing to realise when you are about to enter into a lease for a commercial property is that there is no such thing as a standard contract.

I get concerned that many individuals and organisations believe that commercial property leases are standard [they are not] and that any “standard” variations are simply the preserve of the landlord [they are not].

It is easy to think this is the case when you are presented with a formal document. Now don’t get me wrong – there are carefully worked out legal components to a lease agreement as laid out by professional bodies such as the Auckland District Law Society.

But it is important to realise that there is a lot more that is negotiable in a commercial property agreement than simply the length of the lease and the net rental.

So here are some tips to consider when entering into a commercial property agreement before you put ink to paper…

  1. Parties. It is important to establish clearly who the contract is between. Is the landlord named in the contract the owner of the building, a head tenant who  is sub-leasing some of their space, or perhaps individuals trading as an entity?
    It sounds simple, but clearly establishing who the parties are is critical, as is getting clear about who will act as guarantor for the lease. From my experience, the guarantee is always the subject of some debate when negotiating a commercial property lease agreement.
  2. Lease Term. Carefully consider how long you want to lease the space for and recognise that – much as when you buy a house or get married – you are entering into an agreement for better or for worse. You are locking yourself into something that can change your life.
  3. Right of Renewal. When you are considering the right term for you, it is also important to be aware that you can negotiate a right-of-renewal at the end of the term. If you negotiate this correctly, it is not simply an option – it is a right, as long as you have not breached any terms and conditions in the lease.
  4. Important Dates. It’s not just the lease term and right of renewal date that’s negotiable either. The timing of rent reviews is also negotiable. There is no standard or legal requirement to have rent review dates fall on a specific date defined by the landlord.
  5. Total Occupancy Cost. A trap for young players is to fixate on the net rental but blindly accept the operating costs. There are always operating costs to take into account… and negotiate! Examples are such things as car parking, landscaping, cleaning, power, security and other associated costs.
    You need to know the total occupancy cost. It is very easy psychologically to think, “Oh, my rent is $6,500 a month”, when really by the time the other occupancy costs are factored in, your outgoings on leasing the space are $7,500 a month.
    You should also note that changes in these additional occupancy costs (operating expenses, or opex) are not limited to rent review dates. They can go up and down on an annual basis.
    At Parallel Directions we think tenants should only pay a fair share of these operating expenses. It’s such an important factor that we offer a specific product, an Opex Audit, in order to gain a very clear handle on these operating expenses and where there is room for negotiation.
  6. District Plan. Before signing on the dotted line of a commercial lease agreement, make sure there are no restrictions on operating your business at the premises you are about to lease. You need to know the District Plan’s zoning for the premises and whether there is any resource consent required or bylaw that might inhibit you operating your business.

If in doubt, you know who to call!

Source:  http://www.officeblog.co.nz/negotiating-a-commercial-property-lease-agreement

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What happens when big corporations vacate old premises?

March 23, 2010 Leave a Comment

Reprinted from Parallel Directions.  View the original post HERE!

One of the key impacts on the currently flooded commercial property market is the number of large corporate tenants moving to new buildings.

In Auckland, there’s a growing list of large banks, insurance companies, management consultants and engineering firms moving to bigger, better, brighter and greener premises.

Banking
The ANZ, ASB and Westpac banks have, or soon will, move to highly rated green-star buildings around Auckland’s up and coming waterfront precinct.

Insurance
Likewise, ING and IAG in the insurance industry have moved downtown, and on the North Shore we’ve seen Sovereign move from Takapuna’s retail strip to a state-of-the-art building in the Smales Farm technology office park.

Telecom
Telecom is moving from several buildings around central Auckland to one large complex overlooking Victoria Park.

Others heading towards the cooler environs of downtown include the large engineering practice SKM, which has relocated to the new office park built over the ex-rugby league grounds at Carlaw Park.

When the boom was booming loudest
I am often asked why these large organisations are moving when the global economy is still in turmoil. Simply, the decisions to move were made several years ago when the boom was booming loudest.

I was told last week by an executive of one of these organisations that if they had to make the same decision today, they wouldn’t be moving.

Anatomy of oversupply
These large corporations leave a large gap behind them when they move to new premises. But at the same time, as anchor tenants in new buildings, they don’t fill every floor of the new complex.

So we have vacancies in the new buildings they move to, and bigger vacancies in the buildings they vacate. The result is an inevitable oversupply.

Pitfalls
While tenants seeking new commercial space may appear to be spoilt for choice, there are some pitfalls for those taking up space in the buildings recently vacated by the large corporates.

For a start, prospective tenants will most often be smaller operations than the large banks, insurance companies and consultancies. As they require a smaller area than the bigger companies, they don’t hold quite so many bargaining chips.

Likewise, they don’t have the grunt of well-organised and practiced property departments behind them like the larger firms.

Tough landlords
It is critically important to have the support of professional advice because the professional landlords are tough negotiators used to dealing with tough opposition from the bigger firms.

Tough negotiators
It’s an area that we at Parallel Directions specialise in, so don’t hesitate to give us a call if you are considering taking up space in one of the vacated buildings.

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Beware of impending landlord wars…..

March 23, 2010 Leave a Comment

Reprinted from Parallel Directions. See original post HERE!

I’m predicting the commercial tenancy market is about to become a bloody battlefield as times get really tough for investors and landlords managing commercial property portfolios.

There are five key factors that will cause this warring between landlords.

  1. High Vacancy Rates. On 3 November I reported that vacancy rates were over 15 percent and could go higher in 2010. At that stage the real estate industry was still in denial and reporting a rosier picture. But latest research shows vacancy levels, particularly for office space, running at highs not seen since the early 1990s. There is now acceptance that vacancy rates could hit 16 to 18 percent.
  2. Increasing Supply. Add the new office space coming on stream over the next two years to the high vacancy rate and you have one almighty glut. Auckland has 75,000 square metres due to come on stream in the next two years, and Wellington has 90,000 square metres!
  3. Legislation. The third factor that has landlords squirming is Government’s indication this year’s budget will do away with depreciation provisions for tax on rental property, plus the possibility of a land tax.
  4. Low Demand. Demand is still dropping. Many businesses continue to shrink, very few new start-ups are underway, and more and more businesses are looking at ways to cut costs by using less space and having people work remotely.
  5. Falling Rentals. Commercial rentals are falling by 15 to 20 percent in Category-A buildings. This is an indicator that rents are on the way down in all categories.

If we delve into what’s happening, we can see that new space coming on stream is all largely committed to new tenancies. But vacancy levels will soar as these tenants vacate older premises to move into the new buildings.

I predict the commercial lease market will turn in on itself and we will see landlords poaching each others tenants as they vie to keep their buildings occupied.

While this buyers’ market might seem to benefit commercial tenants, these are very dangerous times and you must act cautiously and with expert advice.

Landlords can easily sugarcoat deals to make them appear more appealing to tenants. And commercial real estate agents working on commission will continue to con tenants into believing there is a set price and terms & conditions for rental space.

It takes shrewd advocacy on behalf of tenants to ensure good deals are negotiated and achieved as landlords and commercial real estate agencies go into “convince at all costs” mode in a desperate attempt to keep buildings fully occupied.

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