With today’s market conditions tenants are in a more vulnerable position than ever before. You can read some interesting market trends from Valter Kalaus, the managing director of Cresa.
- What would you recommend to a company who would like to move to a new office within 6-7 months from now?
- I would tell them there are in a very difficult situation. Almost mission impossible. Office buildings are fully let, the market is heavily dominated by landlords. Total vacancy rate is below 6%, on the Váci corridor it is 2-3%, and on the other main submarkets the demand is strong, there are many competing parties for available spaces. Occupiers are in a vulnerable position: the smaller because landlords cannot commit to 300-400 square meters, the larger only because few thousand square meter office spaces area not available on a short notice. Though the latter are in a better position, as there are few hundred thousand square meter office developments in the pipeline. Developers would not commit with a 1.000 square meter tenant need yet but would sign a prelease agreement for a 4-5 thousand square meters for sure. From those the successful ones will be, who requires less compromise and have a quick decision-making process.
- Nevertheless, in case the occupier is successful what are the tenant representative expert recommendations before signing a lease agreement?
- Timing is very important, considering the size, the preparation for a move could start even 2 years ahead. The belief that the real estate market is a slow market. Today, is not true anymore, changes happen fast.
It’s important to fully understand and appreciate the tasks that are necessary in case of a move or extension. We dedicate tremendous time to understand our client’s business needs, the space that will be needed in couple of years’ times, the special functionality fundamentals and traditional space set up requirements.
- What are the common mistakes?
- For example, when the occupier says: we need 1.000 square meter, and we figure out later the internal space fit-out. We need to think the other way around: first let’s have a look what are the business needs and start planning the internal space fit-out based on the specific requirements. Today the HR department’s involvement in the process is a must. Considering the employment retention, the workspace environment is one of the main active tools. The office space also represents the company, the brand, if the locations and design is good, has an interesting, unique fit-out, then even the business partners recognise it, and employees will talk about how much they like to go to work. We help to find the right location and to create the best internal working environment, if it’s the right choice, we prove that it’s worth paying a 1-2 euro/ square meter higher rent for the right office building and employees are happier to go to work. This way, in case of an office move the employment retention can remain strong, and the recruitment will be easier.
- In previous times the tenant representative success was measured based on how much total cost saving could he negotiate for the occupier. For example, how many benefits were achieved. Should we forget that today?
- We should treat carefully the cost saving, as with today’s lease agreement conditions, it’s almost impossible. Today the best tenant representative is, who can get the office space where the occupier wants to be.
- Why would they need an external help? When they can go online and find the right office building and negotiate themselves the terms.
- We know well the whole market and see the transactional activity. We know 1-1,5 year ahead if an office space will be free and this knowledge gives us the wining advantage. We are not agents but true advisors, and we don’t find a tenant for an office space, but we find the right office space that fits the occupiers need.
- Is it right to say that the occupier alone would not be able to get any benefits?
- Today definitely not, because of the low available space the landlords are comfortable. There are some landlords who give no rent-free period for example. Meantime rents increased with 20-25%, and in some cases after the first proposal, there is even a bid upwards. We can forget the moving contribution, and the extra internal space fit-out contributions.
- Thus, the landlords blackmail potential is high versus the tenant.
- This sentence is somewhat strong but is very unfortunate that we see landlords who abuse their current position. To give you an example: there are cases when landlords charge the multiple amount of the fit-out costs, occupiers find themselves in a position where they have no choice, and this is very unfair. A correct landlord would never do something like that. The market will change again in a couple of years and the occupiers will remember how the landlord treated them. And when their lease expiries they will choose another building.
- This also requires that in the tenant representatives’ team there are technical project managers.
- Obviously, it’s a must – and we have them in our team. Our well qualified technical project managers very often face poor quality fit-out works, with unrealistically high bills. Clearly, without finance, legal and HR team contribution even we would not be able to add value to the occupier.
- So far, we talked only about category “A” office buildings. What is the situation in lower categories? Is there a high internal movement, are lots of companies trading up their apartment offices? How much is the “B” category office market changing.
- The new and the high category will always have its charm. To step up has always a strong message: that the company is strong, growing etc. Between the categories we can find big technical difference. Is much better to work in a WELL certified office building, than in a dilapidated 20 years old building. Obviously in those certified buildings employee’s efficiency increases. However, the property managers of the category “B” office buildings will need to improve, modernize the technical background and the space fit-out as well. There are many and even more items to consider when we calculate if is worth for the occupier to pay 2-3-euro/ square meter higher amount. And this is exactly where we can help the most.
- Will there be a greater functional change in the office buildings? Possibly would some of these buildings be transformed into hotels, like we have seen in some downtown cases.
- We can see those changes as well, but I don’t think it will be a massive impact on the office market. I would rather highlight the coworking or shared offices, as a disruptive factor the serviced office functionality office building, that either can be developed in classic office buildings on a few thousand square meters, or they can be opened in downtown apartment buildings.