Once you sign on the dotted line, you
have committed yourself and your
business to a space. Effective industrial real estate negotiations help to ensure
you can happily live with your decision for
years or even decades to come.
“It’s critical for any type of company —
industrial or otherwise — to carefully negotiate and plan its contracts or leases for
space,” says Greg Haynes, senior vice president of industrial brokerage services at CB
Richard Ellis, Atlanta. “Not preparing leads
to poor performance, including potential
immediate and future effects on the company’s profitability. While it is virtually
impossible to cover every unforeseen circumstance, a carefully designed plan can
mitigate mistakes.”
Smart Business spoke to Haynes about
how to avoid a poorly negotiated industrial
space lease or contract by carefully executing proven negotiation strategies.
What advantages result from effective negotiations?
Certainly, cost savings is considered the
chief measurement of an effective negotiation. The tricky part is defining cost savings.
Does it mean the lowest cost of occupancy
measured strictly by the rate per square foot
the occupant pays? Or does it include a
much broader analysis, which factors in
incidental costs that may not show up in the
lease rate? Being an effective negotiator
entails much more than locating space with
the lowest rate. However, it doesn’t hurt to
know where to find bargains. Making sure
that they really are good deals is the key.
How can businesses position themselves for
success?
Businesses should keep up with the market conditions for their type of space on an
ongoing basis, not just the year prior to their
lease termination. Although not quite as
volatile as the current stock market, the real
estate market can have spikes. If you have
the flexibility to take advantage of conditions when they are soft, you can experience many happy returns down the road.
If you know you are going to have to
expand your space needs within a certain period of time, you might even consider an
earlier move if the current market conditions are conducive. Don’t bet your business on a premonition that the current low
rates will remain low or will go even lower.
Lock in the good deals now.
What leads to the most beneficial agreement?
The most beneficial agreements are ones
that are reasonable, fair, planned and allow
for the maximum flexibility. The most interaction that a tenant should have with a
landlord is the initial negotiation. Knowing
your landlord too well may mean that your
tenancy is not going as expected and that
there were too many unanswered questions
going into the relationship.
Choosing the right broker for the assignment can also be critical in the overall success of the process. Companies should
interview three brokers before choosing
one based upon his or her knowledge of the
market and overall real estate expertise.
That includes knowing the range of rental
rates that a tenant can expect to pay, as well
as other associated costs, such as taxes, insurance and common area maintenance.
If the market is in a certain rate range,
clients should expect to pay a rental rate in
that range no matter how good of a negotiator they hire. However, a knowledgeable
broker could know why one location is a
better long-term choice.
What tactics can increase companies’ control throughout the process?
The best way to increase control is to
understand control. One of many ways to
exercise control is to set realistic goals and
be willing to live with the results. Also, it’s
fundamental for a tenant not to give buy signals upon inspecting the space. A good broker can coach a tenant in those subtle
nuances. The best way for a tenant to proceed is to make few comments, and ask a
lot of questions. Knowing the right questions to ask also saves time. Increasing control is tantamount to increasing competition for your business.
What should businesses never do in industrial space negotiations?
If the landlord senses that you’re out of
options for renewal or otherwise or
receives other vital information, he’ll stop
before he reaches his bottom line and say:
‘We have this deal and don’t have to go any
lower or make further concessions in rent
or tenant improvements.’ Avoid any potential slip-up by having a central point person
for communication with the landlord, typically your broker. You might have the best
operations person in North America as
your employee, but he or she should never
be talking directly with the landlord or the
landlord’s broker.
Another key point to remember is that
what you clearly see straight ahead is not
the likely outcome; but rather, the final
result is usually one on the periphery. Stay
open and flexible throughout the process.
You should always be willing to consider
new alternatives that could offer as good, if
not better, a result than the ones you originally had in mind.
GREG HAYNES is senior vice president of industrial brokerage services at CB Richard Ellis, Atlanta. Reach him at (404) 923-1436 or
[email protected].