This article by Jay Wall originally appeared in the Houston Business Journal, July 30, 1999
As the muggy summer heat overtakes Texas and the rumble of thunderstorms echoes, Houstonians begin to daydream about those cooler days of December, the holiday season and ski trips to Colorado. It would be a safe bet to assume that more Colorado ski trips are planned in Houston during the heat of the summer than any other time of the year. But strangely, the same person who will take the time in the summer to plan ahead for a winter ski trip, is often the last one to plan ahead for an office lease renewal.
Advanced planning is the cornerstone of every successful business enterprise. But for some reason, office tenants seem to always want to avoid confronting the eminent lapse of their lease. Apparently it’s another example of that old human frailty of procrastination.
Landlords are, for the most part, skilled ostrich hunters. They just love to sneak up on tenants while their heads are tucked securely in the sand.
Instead, tenants with less than a year remaining of an office lease should engage a leasing broker. Six months is the bare minimum and larger tenants need an even longer lead-time for a leasing broker to either properly negotiate a renewal or find a new location.
EVENING UP SIDES
There is no reason to start out with an adversarial relationship with the landlord. But they do have their own agents representing them. Logic dictates that the tenant have a skilled professional represent him.
The landlord’s agent will quickly point out that the tenant really doesn’t need to bring in an outside party to handle the negotiations. That is not entirely untrue. A tenant doesn’t have to bring in an outsider, someone whose loyalty is to the tenant and who has no financial connection to the landlord.
The landlord may be a trained professional who is skilled in not only negotiating a renewal, but also has experience in locating a better location at a comparable or possible lower rate than the tenant is paying now. The tenant can just keep his head tucked in the sand and hope that the landlord is gentle.
The landlord’s agent will, of course, appreciate the fact that he doesn’t have to split his commission with a leasing broker the tenant has engaged. And the landlord’s agent will have an especially fat commission because the tenant didn’t have an agent representing him to negotiate a better deal.
No successful business person would allow the business manager of a labor union to handle all the negotiations for a new labor contract, but many seem to feel that negotiating an office lease renewal is a relatively simple matter that they can handle without any professional guidance.
DRIVING RATES UP
Those individuals are a significant part of the market pressure that drives lease rates up.
Landlords gauge their lease-rate increases based on what the market will bear. Every time an under-represented tenant caves in for a 50 to 100 percent increase in rates with the only concessions being steam-cleaned carpet and a quickie paint job, the landlord rubs his hands together and licks his chops — ostrich burgers for everyone!
Probably the most important thing to remember about the dollars a tenant spends on space is not the number of them that goes out each month, but, more importantly, what they produce. The value and productivity that a business gains from those dollars are the only true measures of success. Low rates are not as important as wise use of money.
What is important to a tenant is getting the most efficient space available, resulting in the maximum return on his investment. There are many factors to take into consideration, such as firm’s growth. It may require anticipating expansion and all the multitude of significant details that impact on negotiating an office lease. To do that, it is essential to have a leasing broker who is able to step back and get the big picture, not just go for the cheapest space.