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how to get the most out of your lease

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1
Amicus Interiors Whitepaper
white paper
How to get the
most out of
your lease
2
Amicus Interiors Whitepaper
Executive
Summary
Brisbane’s commercial leasing market is
currently at the bottom of the property
cycle with high vacancy rates, prompting
landlords to offer leasing incentives
designed to entice new or renewing
tenants, and maintain “face” rents for
building Valuation purposes.
The resulting benefit for tenants is the ability to match their lease incentives
with fitouts to either reduce or neutralise costs. In order to negotiate the best
deal it’s important to know what should be included in incentives.
This paper has been prepared by Amicus Interiors and outlines the main
points tenants should consider when negotiating leasing agreements.
About the author:
Andrew Holder is the CEO of Amicus Interiors Australia, a professional, service
driven organisation, specialising in office fitout and refurbishment. Visit
amicusinteriors.com.au.
P 1300 360 877
E info@amicusinteriors.com.au
W www.amicusinteriors.com.au
3
Amicus Interiors Whitepaper
What are
leasing
Incentives...?
P 1300 360 877
E info@amicusinteriors.com.au
W www.amicusinteriors.com.au
Landlords use leasing incentives when
there is a soft activity of tenants to
encourage longer contracts....
Incentives may be offered in the form of a rent-free period (up front), a
rent abatement or reduction period (usually over lease term) or fitout
contribution to fill vacancies and preserve market rents. The fitout incentives
help tenants to either reduce their total fitout cost or balance spend
completely, allowing a cost-neutral fitout. Only landlords who have access
to capital can offer fitout contributions. Private owners for example, with
limited capital may only be able to match incentives by offering rent frees
or abatements, so if you need a fitout contribution, it is always important to
make this clear up front when dealing with your Tenant Representative or
leasing agent.
4
Amicus Interiors Whitepaper
Brisbane’s
current
market...
The rush for Brisbane tenants to make
the most out of lease incentives is
reflected in a recent study conducted
by Amicus Interiors titled Amicus
Fitout Trends.
According to the most recent Australian Property Institute (API) Property
Directions Survey the commercial property market in Brisbane has declined
in the last 12 months, falling back to the bottom of the cycle and bucking
the upward trend that was documented in API’s May report. The Property
Council of Australia (PCA) statistics released in July, 2013 stated that Brisbane
CBD’s vacancy rate was 12.80%.
Staff reductions, particularly in the mining and resource sectors, and State
Government downsizing, has resulted in Brisbane’s vacancy rate increasing
during the first six months of 2013 to the highest rate in 20 years, from 9.3
percent to 12.8 percent (note these are PCA figures)
With strong competition in Brisbane’s leasing market landlords are being
forced to offer better packages to secure long-term leases. Tenants are
at a clear advantage right now with incentives at about 25 to 30 percent
measured by the value of the incentive as a percentage of the total
unreviewed rent over the term.
The rush for Brisbane tenants to make the most out of lease incentives is
reflected in a recent study conducted by Amicus Interiors titled Amicus
Fitout Trends. The survey targeted 345 tenants across Sydney, Melbourne and
Brisbane with the aim of understanding current trends. It found 25 percent
of those surveyed from Brisbane have moved into new offices within the
last year and almost 34 percent of all Brisbane respondents completed their
office fitouts less than a year ago. The study also discovered over 60 percent
of those surveyed from Brisbane were not planning on moving out of their
premises within the next two years, suggesting a high rate of long-term
leases.
P 1300 360 877
E info@amicusinteriors.com.au
W www.amicusinteriors.com.au
5
Amicus Interiors Whitepaper
What to expect
now...
After the Global Financial Crisis (GFC) many companies became risk averse
and cut financing, driving tenants to become more informed and more
involved in their lease negotiations. It’s not just a matter of sending out
the tender for fitout, selecting the cheapest option and signing the dotted
line. Shopping around for a deal that can address the unique demands of
a project has become an important process during economic instability.
Selecting the cheapest tender may have disastrous consequences - for
example, if the company is on the brink of insolvency.
The GFC also hit Australian furniture manufacturers, leading to a 40 percent
decrease in the cost of most workstations and furniture supplies in an
attempt to streamline overheads and supply chains to compete with the
Asian import market. Workstations that once averaged between $1500 and
$2000 can now be sourced for around $1000 to $1200. The price reduction
was also a response to tenants who have moved to spend more on things
like IT requirements, fire protection and UPS back-up.
The question facing most clients is,
how much do you get for $1000 per
sqm? In these budget-conscious
times, this area needs to be addressed
in order for clients to avoid poor
service and over-priced fitout quotes.
P 1300 360 877
E info@amicusinteriors.com.au
W www.amicusinteriors.com.au
6
Amicus Interiors Whitepaper
Whats
included...
One common problem tenants face when working out fitout costs is
establishing what’s included. It can pay to have a tenant representative to
negotiate particulars with the landlord but if you don’t have one, ceilings,
carpets, perimeters/inter-tenancy walls, demolition of existing fitout, and
tiles should all be covered outside of the leasing incentive.
So what will $1000 per square metre
get you?
The cost will vary depending on various external factors but generally the
breakdown is as follows:
•
•
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•
•
•
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•
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•
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•
P 1300 360 877
E info@amicusinteriors.com.au
W www.amicusinteriors.com.au
$250 in furniture and workstations
$150 in air conditioning
$150 in partitions
$90 in joinery
$70 in builder’s profit margin
$60 in flooring finishes
$50 in power and data services, doors &ceilings
$40 in design fees
$30 in site costs and fees
$20 in fire protection
$20 in plumbinag
$20 in blinds
$15 in painting
$15 in security systems
$10 in audio visual
$10 in signage.
7
Amicus Interiors Whitepaper
Choose wisely...
Doing your research, just as you would for any other business deal is
key to getting the most out of your leasing agreement. The market now
understands that engagement of an independent tenant representative can
also save time and money through the services they provide.
Wised-up tenants are moving away from the traditional tender process
and realising the cheapest option isn’t always the best option. There are
numerous options to consider when making your decision and often all it
takes is a bit of negotiating with landlords to gain back your spend within the
areas that allow more flexible terms.
If you’re looking at staying a while,
signing a long-term lease can lead
to some substantial concessions
but it’s also a significant financial
commitment.
Make sure you understand the legal wording of your contract and if you
don’t, have a lawyer review it for you.
It’s also worth shopping around to find a leasing agreement that suits your
business’s objective. You’d be surprised what kind of incentives landlords are
willing to offer to secure a long-term lease in a competitive market. There’s
no better time than now for Brisbane tenants to take advantage of the
current market.
P 1300 360 877
E info@amicusinteriors.com.au
W www.amicusinteriors.com.au
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