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Hidden Leasing Costs - NJuly 2023
It is interesting to note that after salaries, the second highest business cost are the rental costs for leasing a premises. In many cases the total cost of occupancy over the term of a proposed lease, is not fully understood, or calculated.
Various additional costs such as outgoings, parking, fitout costs and make good, together with leasing incentives, are not factored into the decision making and evaluation process. Accurate budgeting will reduce risk, and save time and money.
The most appropriate financial analysis to use when considering leasing a property is to establish and compare 'whole of lease' term costs.
If you are thinking of moving, then now is a great time to plan the move, to ensure the best outcome for your business, money and reducing risk in the process. This will give you peace of mind, and the confidence to make an informed decision.
Golden Rules for Tenants - January 2024
There are four primary questions a Tenant needs to consider prior to a lease expiry.
1. Do we need to move - should we move?
2. Is it easy to move - what’s available and how much hassle?
3. What savings and business productivity improvements can be expected - why move?
4. What’s the best deal - getting the most appropriate deal and premises?
This approach can be applied to office, industrial and retail premises.
Running short of time – remember time marches on and waits for no one.
Allow plenty of time so that you are well prepared and not forced to make a hasty decision, or place yourself in a poor negotiating position. Do not falsely rely on the ‘state of the market’ and allow yourself limited options in which to leverage the market.
Be aware of timelines – a search process may take 6 to 12 months to complete. If a new building is under consideration, allow 24 – 36 months, for new building construction with an integrated fitout.
Obtain appropriate advice – Do not make the wrong decision for the wrong reason
Do you have the time and expertise to research the real estate market and deal with the different agents, whilst handling all of your other job responsibilities? How do you compare one deal against another?
Solution - Obtain advice from an independent property expert, as it is their core business.
Understand your needs
It is critical to assess your company’s accommodation needs for the next 3 – 5+ years. This will allow for future growth and flexibility (or contraction). Establish future needs and operational plans and do not be influenced by ‘market hype’.
Test the Market – You must demonstrate to your current landlord that you are willing to relocate into another property. It is difficult to obtain any leverage in the negotiation process if your current landlord believes that you will stay.
Be Objective – Do not make your business decision purely on the best rental deal available. Assess the non-financial considerations, such as the image your company wants to project to clients and staff satisfaction. In addition, I see many tenants paying inadequate attention to building services (air-conditioning, lifts etc.) and technical issues, such as IT requirements.
Future Proof the Business – Not recognising the future. Ensure appropriate strategies are in place for changes in business operations. This will assist to minimise any unplanned and reactive changes and spending in the wrong areas. It will also allow greater flexibility to cater for future expansion, or contraction.