BING NEWS

November 1, 2015

TOP 10 TENANT CONSIDERATIONS – WHAT YOU NEED TO KNOW

Spring Carnival always seems to be the catalyst for an uplift in leasing activity in Melbourne’s north-western industrial market, and didn’t we need it!  It has been a rather subdued year in the leasing sector, but current enquiry levels have spiked so we are anticipating a very strong finish to 2015.

On that note, we thought we would re-visit the TOP 10 TENANT CONSIDERATIONS, applicable to organisations considering their future occupancy requirements.

1. IS A RELOCATION NECESSARY?
Some businesses assume that renewing their lease will be a more economical solution than relocating to a new premises which may offer operational gains.  These considerations typically centre on the sunk costs of relocation.  It is important to clearly quantify both scenarios, noting that many developers are prepared to rentalise relocation costs if cashflow is a challenge for occupiers.

2. YOU GET WHAT YOU PAY FOR – ASSEMBLE THE RIGHT PROJECT TEAM
I am often surprised when organisations that are likely to pay a rental amount in excess of $1 million per annum aren’t prepared to make a small investment to engage experts to work with them to ensure a fantastic outcome.  The right project team can clearly identify, quantify, and integrate major operational benefits within a future warehousing footprint via the development a detailed design brief.  Again, these consultancy costs can often be amortised into rental proposals if the preference is to preserve cashflow.

3. TIMING IS EVERYTHING (DON’T LEAVE IT TOO LATE!)
We would recommend that occupiers need to have a concise and detailed design brief completed by no later than 18 months from their preferred “GO LIVE” date and/or lease expiry. In the event a design and construct solution is the preferred course of action, the process for the procurement phase of securing a new facility should allow a minimum of 12 months from the execution of Agreement For Lease documentation for project completion.

4. MAKE GOOD – NOT AS BAD AS IT MAY SEEM
It is a regular occurrence that occupiers believe that their make good obligations outweigh the benefits of a relocation. In rare circumstances this may be correct, but with the right advice this can be quantified as part of the initial scoping phase for a potential requirement.

5. GO THE MARKET ONCE – WHEN YOU ARE READY
False starts in warehouse procurement only damage the integrity of the tender process, and often have a negative impact on the quality of the transaction secured.  Our advice is to prepare diligently, which will lead to more enthusiastic participation from developers.  Importantly, the risk of costly variations is significantly reduced.

6. TO LEASE OR BUY?
The values we are witnessing in Melbourne’s core industrial markets are particularly friendly to tenants at present. For specialised occupiers with specific needs for significant power and infrastructure, ownership is more common due to the need to protect long term occupancy costs.

7. LOCATION, LOCATION, LOCATION
Melbourne’s core industrial markets benefit from quality road infrastructure and significant land supply, which often makes it challenging to differentiate development offerings.  The key is to firstly identify the main drivers for location (e.g proximity to the port, or workforce), which should go some way to determining the most appropriate core location. The next phase is to assess occupancy costs against potential operational savings derived from specific locations within a core market. These may include proximity to freeway access points, or proximity to major customers within a specific market.

8. CONTROL THE CONTROLLABLE (OUTGOINGS, MANAGEMENT FEES, RENT REVIEWS)
The money required to pay occupancy costs outside of rent is just as hard earned for your business. When we work for companies looking to secure the best possible financial occupancy deal our mantra is to challenge everything. You will often be surprised where significant savings can be found.

9. LEASE COMMENCEMENT VERSUS “GO LIVE” (GET IT READY IN TIME)
A well organised program will allow for a tenant to secure an integrated fit out period where data cabling, racking installation, power reticulation and other occupancy requirements can be completed so that you are fully operational from lease commencement. This obviously has a significant benefit to operating costs, but also to team morale as a smooth transition is enjoyed company-wide.

10. MAKE IT FLEXIBLE
In the current climate we appreciate that companies are facing numerous challenges, and forecasting for the mid to long term can be difficult. We therefore would recommend that any occupier should seek to imbed some flexibility within the warehousing footprint. This could mean isolating some additional land for expansion, or requesting the provision of additional services and amenities within the facility so that more than one tenant can be accommodated if required.