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Negotiating favourable terms on leased spaces

21st October 2013

Negotiating favourable terms on leased spaces

Finding the perfect office in Central London can be a difficult task for the majority of occupiers. There are so many boxes to be ticked including location, size, layout, style, amenities; the list could go on and on! Therefore finding an office that ticks every box can be a thankful task and when an office is selected that does it often seems to be the one creeping outside of the budget. 

At Morgan Pryce we always suggest that it is important to look at the budget on an annual basis taking into account rent, rates payable and service charge and with every office that we view with a client we will break this down into a cost comparison to show the cost of taking the space per annum. The majority of spaces quote a rent on per square foot basis, therefore making sure that the space that is being taken is not too big for the company’s needs as they will be paying for the excess square footage.

It is always important to negotiate to a fair level especially when the annual cost could be the difference between moving forward with an office and carrying on the search. Generally, when taking a new lease the two main points that are negotiated up front and need to be agreed before there is any point in proceeding to the next stage. These are the rental level and any landlord incentives, generally given in the form of rent free. Rent free is designed to offset the cost of fitting out the office; however the amount given is driven by the market at the time and is different in the different sub-markets across Central London. For example in the City you are able to achieve almost double the amount of rent free you would in the West End. This is mainly due to the amount of supply available with vacancy rates at around 9.5% in the City and is about 4.5% in the West end.

Knowing who the landlord is and understanding their drivers is very important in achieving the best terms possible. If the landlord is a big institutional landlord with a large investment portfolio then they will be looking to keep the headline rent of the office high as it is directly related to the investment value of the building. However in order to let the space the landlord may be more generous in the amount of rent free that is given away. Similarly private landlords with a smaller property portfolios may be more worried about their cash flow and may be less negotiable on the rent free that they are willing to give away, but will be more flexible of the level rent that they are willing to agree to. Therefore it is important to look at the budget on a net effective basis taking into account rent free periods.

This news was brought to you by Morgan Pryce, a specialist tenant acquisition agent with offices in Oxford Circus and the City. Morgan Pryce specialises in search, negotiation and project management and works exclusively for tenants. 

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