Is your commercial property broker representing your business or your landlord?
According to a recent report by Savills, while strong demand for top-quality spaces continues to underpin prime office markets around the world, in some markets landlords are having to work harder to attract and retain tenants, with concessions and incentives being used to help offset rising costs to occupiers.
Says Alex Oberholzer, head of the occupier services division of Swindon Property, Savills’ commercial property associate for in sub-Saharan Africa: “Globally, as stated in Savills’ report, in recent years, concessions and incentives have become increasingly important to attract and retain tenants in a competitive office market. Work-from-home and pandemic-era trends such as hybrid working and hotdesking have made a lasting impact on the leasing environment.
“Demand for fully fitted turnkey space in prime locations has grown. This type of space is desirable to tenants for its ‘plug-and-play’ benefits, allowing quick move-in and set-up times for new tenants. Occupiers increasingly demand high-quality, fully built-out space without needing to invest time and money into planning and executing the design themselves, while astute landlords can also charge a premium for rent for these spaces.
“Increasing fit-out costs are rising due to a variety of factors, including a general increase in labour and material costs, as well as inflationary pressure, which is true in South Africa as well as internationally. This creates a challenge for both landlords and tenants – for landlords, it means that it will likely be harder to market undeveloped space and more expensive to commit to turnkey developments. Tenants, on the other hand, may be forced to account for these prices in their office footprint decision process.”
Adds Oberholzer: “Rent-free periods are another popular means of incentivising leasing activity in a building, especially in light of higher fit-out costs. Over the past five years, the global average duration of these rent-free periods has increased from approximately 7-10 months over the typical lease term, particularly in markets facing higher vacancy.
“In some markets, landlords are going above and beyond the standard amenity provision. In addition to gyms and conference centres, ESG (Environmental, Social & Governance) credential upgrades to buildings and even sports facilities such as basketball courts have become additions. Hong Kong is an example of this, and if the market space is at a premium and buildings can’t typically accommodate more amenities, landlords are becoming creative by providing tenant-exclusive apps that offer discounts to local shopping and food.”
So what are key factors and amenities which tenants look for today in a commercial property to rent?
According to Swindon Property, these are top of the list among commercial property tenants:
Location: Accessible and convenient locations with proximity to transportation hubs, major road networks and amenities such as restaurants, shops, and banks are highly desirable.
Safety and Security: Tenants prioritise properties with robust security measures, including access control systems, CCTV surveillance, security personnel, and well-lit parking areas, to ensure the safety of their employees. This is especially true of call centres which operate 24/7, among others.
Quality of Infrastructure: Modern and well-maintained buildings with reliable infrastructure, including electrical systems, HVAC (heating, ventilation, and air conditioning), telecommunications, and internet connectivity, are essential for smooth business operations, while back-up water is becoming another key imperative.
Flexible Space Design: Tenants look for flexible space layouts that can be easily adapted to their specific needs, whether it's open-plan offices, modular workstations, or customisable floor plans that accommodate future growth or changes in business requirements. A good amount of natural light and floor to ceiling heights, pleasant views.
Energy Efficiency and Sustainability: Increasingly, tenants prioritise environmentally sustainable buildings with energy-efficient features such as LED lighting, solar panels, green roofs, and water-saving fixtures. Green certifications like LEED (Leadership in Energy & Environmental Design) or Green Star are also attractive.
Says Mike van Schoor, KwaZulu-Natal director for Swindon Property: “Although these green initiatives come at a cost, landlords today need to understand the importance of the infrastructure to be in place to attract staff back to the office and achieve improved occupancy. Energy-efficient buildings typically have lower operating costs due to reduced energy consumption and maintenance requirements, so tenants benefit from lower utility bills, while property owners enjoy increased property value and reduced long-term operational expenses. Generally, however, tenants can expect to pay a slightly higher rental rate for space in Green-certified buildings compared to conventional buildings.”
Amenities and Facilities: Properties offering on-site amenities and facilities such as cafes, gyms, conference rooms, co-working spaces, childcare facilities, and outdoor recreational areas enhance the workplace experience and contribute to employee well-being and productivity.
Parking and Accessibility: Sufficient and secure parking facilities, including both on-site and off-site parking options, are important considerations for tenants, as well as accessibility for employees, clients, and visitors, including provisions for disabled access.
High-Speed Internet and Connectivity: In today's digital age, reliable high-speed internet connectivity is critical for business operations. Properties with access to fibre-optic networks and advanced telecommunications infrastructure are highly sought after.
Cost-Effectiveness: While tenants seek quality amenities and facilities, they also prioritise cost-effectiveness. Properties offering competitive rental rates, favourable lease terms, and value-added services that contribute to cost savings are attractive options.
Van Schoor says apart from the above factors, tenants are also advised to take into account the following when looking to lease space:
- Lease terms and potential hidden or variable recovery charges, especially where these are based on pro-rata cost allocations, such as charges regarding common areas
- Potential rates increases during the current term of the lease over and above rental escalations
- Operating expenses
- Potential maintenance issues due to the age and upkeep of the property
- Office locations that are affected by severe traffic congestion or potential external security issues
- Flexibility for future needs
- Regulatory compliance and zoning
- Understanding the nature of the other tenants in the building eg a business with high staff volumes per sqm will negatively impact access to lifts, common areas etc
- Tenant rights and dispute resolution.
Van Schoor explains further: “Primary common areas are those that all the tenants have use of, with costs split on a pro-rata basis among all the tenants, while upper floors would also have a secondary common area such as a first-floor lobby, the costs of which are split between only the first-floor tenants. A professional occupier services broker would raise these costs to the tenant to ensure they are aware of these upfront and can make an informed decision.”
Adds Oberholzer: “As a tenant, sourcing and securing new premises can be challenging, as well as renegotiating and renewing existing agreements with landlords.
Medtronic Africa: Swindon Property adapted and sourced multiple property options for Medtronic Africa - which sought to relocate its Durban operation to uMhlanga to be closer to hospitals - negotiating multiple renewal extensions while securing a suitable property. Medtronic Africa secured a three-year lease on a 180sqm property, meeting their operational needs in KZN – and Swindon negotiated terms, optimised layout, and managed the fit-out, ensuring a successful relocation.
“The above key factors emphasise the need for tenants to appoint a professional and reputable firm with a proven track record to represent them and ensure cost reductions risk mitigation and enhanced efficiencies of their workspace.
“On renewal negotiations, we will conduct lease audits to ensure post billings are accurate and provide a detailed report of market conditions to ensure a strong position for negotiation. We also often include the service of a space planner to assess size requirements and ensure that the tenant understands what their usable vs rentable space is, as the common area percentage in buildings can differ substantially.
“Apart from the space requirement, one needs to understand the market values to ensure that the tenant secures fair terms and fully understands the lease agreement to avoid undesirable surprises later into the lease period.”
For further information contact Swindon Property Occupier Services on 021 422 0778 / info@swindon.co.za or visit www.swindon.co.za