In my role advising tenants, I am often asked by clients, particularly those whose primary focus is not real estate, what the common pitfalls are that they should try to avoid. The 10 mistakes listed below are those that I believe to be the most common:
- Running out of time due to beginning negotiations for a renewal or a relocation too late: This is the biggest mistake we see corporations make. In simplest terms, if you start speaking to your landlord about renewing your lease a couple of months before the lease expires, the landlord knows you do not have time to move out. The landlord is, therefore, unlikely to offer an attractive rent for you to stay and you will be forced to accept whatever they put on the table.
- Not considering business goals before implementing real estate strategy: Ultimately the space you lease is there to allow you to focus on your core business competency, be that sales, R&D, etc. Before making a real estate decision about whether to renew or relocate it is crucial that you understand the business’ goals. Be sure to speak to the end users that occupy the space and ask them what their goals are. If they need to increase sales, would it help to relocate your office closer to their target customers? If they are concerned about staff recruitment / retention, would it help to modernise the office to attract millennials or relocate to gain proximity to public transport or amenities?
- Only considering the immediate financial impact: It’s important to understand the cost of every option, but the cheapest option does not always mean the best for you and your business. Savings from leasing in a cheaper building can be quickly eliminated if your sales or operations are impacted by being in that location.
- Too many cooks: A real estate decision about whether you should stay or go will impact all staff. Clearly it makes sense to get opinions about what is important to the various business lines and stakeholders that will occupy the office. However, once the key selection criteria have been determined, it is important to identify a project leader. This person will have overall ownership of the stay vs. go decision and will make the final recommendation to corporate for their approvals. Having too many cooks involved in the final decision will likely lead to delays that may lead to losing an option and can derail the transaction.
- Not considering future growth needs: Be sure to factor in anticipated headcount growth and potential changes to the business’ needs during the lease term. By obtaining flexible terms which will allow the company to expand, downsize or relocate as circumstances dictate, businesses can avoid unnecessary headaches and additional costs.
- Not clearly understanding space metrics: It’s important to understand the difference between lettable, net, gross and “carpet” area. Many markets and landlords quote area on a different basis. Our office leasing guide has details regarding what exactly is included in each measurement so you can compare on an apples to apples basis.
- Not “pre-selling” the plan internally: Most landlords in Asia will not hold a space while waiting for formal approvals from HQ to sign a lease. As a result, we often see tenants lose their preferred option to another company that is able to move faster. To mitigate this, we recommend “pre-selling” the project internally to the key decision makers. This gives approvers the opportunity to ask any clarifying questions before the end of the transaction and ensures that obtaining their approval at the appropriate time becomes a formality.
- Relying on the landlord’s word: Too many times we see negotiations carried out in good faith with certain issues being agreed to verbally. Either through an oversight, lack of time or purely because it is assumed the landlord’s word is good, items are not incorporated into the lease. Even if the landlord’s word is good, people move on from one company to the next and memories fade. Ultimately, if it matters to you, get it in writing.
- Accepting that clauses are non-negotiable because they are “standard”: This is what landlords might tell you; however, there’s really no such thing as a standard lease. Leases are negotiable, clause by clause. Just make sure that you negotiate what you want before anything is binding or before you run out of time and have no leverage.
- Not understanding the elements of value and design: Even though two options may appear to be comparable, normally there will be a reason why one option is cheaper than another. Amongst other things, be sure to ask questions about the location, accessibility, facilities and tenant mix. All of these factors can drive up or hold back rental rates
I originally wrote the above as part of Colliers’ APAC Office Leasing Guide. The guide talks through the renewal vs. relocation process in step-by-step terms, gives details on the specific market practices across the APAC region and demystifies some of the industry jargon. It is an essential handbook to help you make a major business transition, whether your decision is to renew or relocate, with minimum disruption.
What are other common mistakes you have come across?