plus some suggestions to help maximise your next project.
1. PROPERTY SELECTION
A great way to start is to search for an existing fitout (or secure an above-market incentive from a motivated landlord). Fitouts can be tired, expensive to modify or highly tailored to another organisation, so the trick is finding an existing fitout that is suitable...
Know what you are looking for and the costs to make any modifications.
2. MAXIMISE THE INCENTIVE
Historically, incentives were designed to fund the fitout works, assist with any old premises make good plus cover the double rent when holding one premises and fitting out another. As the office leasing markets softened with increased supply, incentives increased to entice tenants whilst preserving asking rentals.
It is important to understand how incentives operate and are calculated, recent market deals and likely outcomes.
Even when renewing a lease option, tenants should consider renegotiating the terms due to the high incentives on offer in the market.
The incentive format is also important: rent free, partial rent free, fitout contribution, cash-contribution, landlord delivering the works or a combination of the above. Each approach has its benefits and will impact other negotiating levers such as the security guarantee.
The goal is to maximise the incentive, but not to the detriment of the other Heads of Agreement components eg: bank guarantee, asking rental, make good requirements, lease term and annual increases.
3. SPEND IT WISELY
With the incentive and Heads of Agreement squared away, the focus shifts to costing up fitout works and loose furniture. Budgets should consider the entire project including relocation costs, IT setup, consultants and any make-good obligations to the outgoing tenancy.
Some fitout upgrades and tweaks can be undertaken cost-effectively. And there is a wide quality range of commercial furniture to select from.
For both fitout and loose furniture:
- conduct a spatial analysis to understand how many square metres are required, and explore any efficiencies or footprint reductions that could be achieved
- forecast future performance and incorporate flexibility into the design so planned and unforeseen changes can be accommodated
- aside from net rental and incentives, make sure the totals leasing costs are understood including parking, outgoings, yearly increases and the mechanics of any reviews to market
- when negotiating, aim to win the war and not the battle. Try not to become fixated on one Heads of Agreement component and remember there is also an ongoing relationship to be managed after occupation
And if it all gets too much, engage a professional.
BRM Projects will be happy to help out.