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11 Mar
Big advantages for Tenants in Perth lease market

A huge over-supply of commercial space in the Perth market has given existing and intending tenants a significant negotiating advantage, according to ACORPP Mario Macri.

"Right now, it is a tenant's market with supply exceeding demand," Mario said.

"This means great deals for businesses who want to establish a lease or significant leverage for those who may want to renew. The time may even be right for some to buy their own space." Mario said advantages might include lower per square metre rates, significant rent-free periods or contributions towards the tenant fitout costs. "Right now, commercial landlords are prepared to consider a wide range of requests and incentive packages to secure or retain tenants," he said.

He urged businesses to take advantage of the timing because "it is cyclical in Perth and can change over time". Mario said that biggest question for a business intending to lease or to renew was "when" should the process of the lease investigation begin?

He said that under usual market conditions, 18-24 months from the time space was needed, or to be renewed, was usually sufficient for most small to medium businesses - depending on whether new premises were to be included which may take longer. "A larger business - like a Rio Tinto or BHP – could begin the process up to three to four years in advance," Mario said. "Don't leave it until the last moment.

If you miss renewal milestones in your existing lease, you could put yourself at a disadvantage with your landlord. "He or she could impose dramatically different terms as a condition of you staying in the space. "This could mean you have to find a new space and lease at short notice and that could be a potentially costly business disruption and distraction," Mario said. He said there were a number of key factors to consider in securing a new lease. These included:

• Current market conditions – supply v demand
• Location – city or suburb; often a significant cost differential
• Size – Current need verses flexibility for expansion and contration
• Lease – length of lease and options
• Other benefits – what incentives is the landlord offering?
• Restrictions – are there any restrictive covenants or conditions?
• Flexibility – can you respond to changing business conditions?
• Exit clauses – what if you want to get out of a lease?

A lease is a legally binding document and it can be a minefield for businesses that are not used to the process.

"Our role in establishing or renewing a lease can add real value to the business bottom line," Mario said.

 

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