Just this week, Kroger announced it will close all its Triangle market stores. The story…
Tenant representation, sometimes called occupier representation, is a core service provided by commercial real estate brokers and firms. Professional tenant representatives work closely with commercial real estate tenants to provide industry expertise, local market knowledge, and predictive intelligence to position each business for success.
“An expert tenant representative knows that space and location can make or break a business,” said CPDG Principal Beverly Keith, CCIM. “It is our job to work closely with tenants to provide industry expertise, local market knowledge, and predictive intelligence to position each business for success.”
Q: Why should I use tenant representation?
A: A tenant representative creates negotiation leverage between you and a landlord. With tenant representation, you gain direct access to market trends and expert information to demand competitive offers for new spaces and/or to renegotiate and renew an expiring lease.
Q: How do tenant representatives get paid?
A: Landlords pay commission on lease deals regardless of whether tenants choose to utilize a tenant representative. Commission rates are pre-negotiated at the time a property is listed and marketed for lease or sale.
As a tenant, you choose how that commission is allocated. If you do not utilize a tenant representative, the landlord’s representative keeps the entire commission contracted between the broker and the client paid on the transaction. However, if you do enlist a tenant representative to advocate for your best interest, a portion of that commission will be allocated to the professional you hired. There are situations where a tenant pays their representative directly, but these are unusual.
Q: How is the commission split?
A: In a typical retail lease, the landlord contracts to pay a certain rate, depending on the market, for the lease of their property. The landlord’s representative receives the entire pre-negotiated commission if no tenant representative is involved. If a tenant representative is involved, the brokers negotiate how the contracted commission rate will be divided between themselves under a separate agreement.
Commission rates for retail space are often calculated on the rent paid over the term of a lease or for larger spaces (RSF) the commission is a flat dollar amount per the total square feet.
Q: I’ve always handled our leases in the past. Why should I use a tenant representative?
A: TIME! If you’ve handled leases in the past, you understand how time-consuming the process can be. Your time is most efficiently utilized running your business, not worrying about the details of your real estate requirements.
A tenant representative offers the time and expertise to facilitate the lease transaction process professionally, represent your interest objectively, present all alternatives and analyze final options.
Q: I have a good relationship with my landlord. Won’t using a tenant representative jeopardize that relationship?
A: Your landlord should not be upset by your decision to seek consultation on your lease—it is merely good business practice. Occupancy costs are often the second largest expense item in a business’ annual budget, typically after employee compensation. As such, it is quite reasonable to procure an advocate in the negation of such a significant cost.
Remember, your landlord is in the real estate business every day; you are not. By utilizing a tenant representative to negotiate your lease, you can avoid direct conflicts between you and your landlord to help ensure your relationship remains positive.