Smart move

I have offices in London and Birmingham, but I need to expand my office in the capital. My lease is due for renewal next year and the landlord who owns both has hinted that the prices will be ‘competitive’, although he isn’t aware that I am looking to move from my London office. However, I think that the worm has turned with property and it is now a buyers’ market, so I want to know the best ways to get the most out of my next agreements. What do you advise?

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A. Adam Landau writes:

Your renewal has come at a very good time as office rents are falling and are expected to drop further over the course of 2009. This puts you in a strong position to be able to achieve very competitive terms. The best strategy to start with is to gain as much knowledge as possible about what office space is available on the open market and at what rents, based on your needs for the next three to five years. You will then be in a position to gain information and access to the right spaces quickly and easily, while also gaining knowledge on rental levels should you wish to stay and re-negotiate with your existing landlord.

The important points to remember are that rents are falling month on month, as there are large quantities of new and second-hand tenants’ space coming to the open market every week. This, in turn, has made rent levels fall due to oversupply.

Rent-free periods have also increased, so make sure you and your agent are aggressive with this point when negotiating. This will help you pay for the relocation and interior design – also known as fit-out – or if you stay put, will reduce your overheads.

There is a lot of pressure on landlords to dispose of their office spaces quickly, as demand is falling through a faltering economy. They also have high costs on running them empty, such as rates and service charges, and there is no guarantee the market will improve for well over a year at the earliest. Landlords need to find occupiers quickly to cover these costs, as the last thing they need is an empty, non-income producing asset for the next nine to 18 months. This puts tenants in an extremely strong position to agree low rental terms, flexible break options and large rent-free periods.

The market is working in your favour, and the further into 2009 you sign a new lease the better the terms will be, so enjoy these times as they only come around once every five to seven years.