True there are some very attractive incentives presently being offered to not only retain existing tenants but also to secure new tenants to empty floor space. Such incentives have to be treated with caution as they are not always what they appear to be. The incentive is a market mechanism employed by landlords to protect and attract new and retain existing tenants.
Quoting rents or “face rents” do not tend to reduce or decrease significantly as markets change in terms of supply and demand. What does however is as markets change incentives either increase or decrease as a levelling mechanism. Hence the underlying “effective rent” is what is all important when considering the totality of any leasing proposal. The effective rent being the actual rent the landlord achieves after deducting any incentive offered from the base rent.
So whilst an attractive incentive may be offered if the face rent (i.e. quoting rent) is in excess of current market the effect of any incentive is severely diluted.It must also be remembered any default by the tenant during the lease may require the incentive to be repaid.
Furthermore in most cases the lessee will be required to remove the fit out at the lease expiry and re-instate the premises to their original condition. This can be expensive being anywhere from $100-$250 per metre.
Chris Goodwin is the Principal of Goodwin Property Advisory who specialise in the provision of independent real estate advice to tenants and occupiers of commercial and industrial premises.
Quoting rents or “face rents” do not tend to reduce or decrease significantly as markets change in terms of supply and demand. What does however is as markets change incentives either increase or decrease as a levelling mechanism. Hence the underlying “effective rent” is what is all important when considering the totality of any leasing proposal. The effective rent being the actual rent the landlord achieves after deducting any incentive offered from the base rent.
So whilst an attractive incentive may be offered if the face rent (i.e. quoting rent) is in excess of current market the effect of any incentive is severely diluted.It must also be remembered any default by the tenant during the lease may require the incentive to be repaid.
Furthermore in most cases the lessee will be required to remove the fit out at the lease expiry and re-instate the premises to their original condition. This can be expensive being anywhere from $100-$250 per metre.
Chris Goodwin is the Principal of Goodwin Property Advisory who specialise in the provision of independent real estate advice to tenants and occupiers of commercial and industrial premises.
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