Recently, I wrote about the one-sided nature of most landlord-tenant relationships when it’s time to renew an office lease. Landlords appear to have the advantage of insider knowledge about the real estate market. However, if the tenants arm themselves with an advisor who knows as much as the landlord and has the tenant’s interest at heart, the tenants can gain the advantage.
But how do you select a real estate advisor to help with your office space needs?
Multiple choice question:
A. Ask my broker friend from the gym to help.
B. Get referrals from business associates, lawyers, architects, etc.
C. Obtain contacts from For Lease signage on the buildings I may be interested in.
D. Answer a broker’s cold call asking about my lease expiration date.
E. Request for proposal
F. All of the above
G. None of the above
The office space procurement process is not a common activity for most business leaders. After all, most leases are five to ten years in duration. But when the time comes — and you should start at least a year in advance of the lease expiration — selecting the right expert can result in lasting benefits to your business, from identifying more options to cost savings and operational efficiencies.
In many markets, the cost of the advisory service is paid by landlords and buried in your rent. So you should exercise control over who represents you in these negotiations, and not leave it up to chance.
So how should you select the right advisor for your business? While any of the multiple-choice methods may yield the perfect candidate, how do you know you've made the right selection? As with other consulting needs, consider these basic factors when hiring a broker:
- A deep knowledge of the niche market your business fits in
- The extent of relevant experience
- The broker's availability and commitment to focus on your needs
- The extended team the broker relies on (design, construction, IT, legal, moving)
- Client references
- Personal chemistry
- The individual broker and the firm's independence from potential conflicts of interest
Just as important are three additional criteria for selecting a broker. First, the broker should ask you about your company and the objectives you want to achieve. Think of this as problem definition. The broker needs a thorough understanding of what you are trying to achieve with your office space from multiple perspectives. Consider variables such as brand impact, visibility, talent retention and attraction, proximity to clients, partners, services and transportation. Also factor in the risk associated with business growth or contraction, the duration and variability of your space needs, your competition and your financial and cash objectives, to name a few.
Second, the broker should provide you with recommended strategies for achieving your office space objectives. The strategies should cover: how to engage in the market, how to obtain the best offers, and how to negotiate the best terms with risks and mitigation tactics.
Third, the broker should ask you about internal governance. The questions should include: how decisions are made and who makes which decisions, how to present financial analysis, who needs to be involved and when, and how to best communicate with the team.
The office space procurement process is too important to leave to chance. Your choice of office space will have material business impacts over a long period of time. Engaging the right expert to advise and guide the process should bring clarity and data-based logic to the space procurement decision.