21/02/2006 - 21:00

CBD balance of power shift

21/02/2006 - 21:00

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The dramatic change in Perth’s office leasing environment in the past 18 months has analysts widely tipping 2006 to be the year of the landlord.

The dramatic change in Perth’s office leasing environment in the past 18 months has analysts widely tipping 2006 to be the year of the landlord.

This isn’t good news for tenants, but what about the people whose business it is to represent tenants?

Digby Swale, director of Western Australia’s largest tenant representative company, Swale Hynes, said the market had shifted, but that the role of tenant representatives was still highly relevant.

“Where previously we were using our skills to maximise client oppor-tunities in an oversupply market, we have moved now to safeguarding our clients’ requirements,” Mr Swale said.

“Now that landlords have the upper hand and are beginning to test the boundaries, I see our role as providing a moderating influence on the market and making sure clients are properly looked after in changing circumstances.

“We are not expecting the same deals of 18 months ago, but we are telling people that entering long-term leases on high rent and low incentives is not necessary.

“Yes, the market is tight, but there are still opportunities, and if that is what landlords are asking for, there are other options; you just need to be a bit creative.”

Mr Swale said tenants would be wise to better utilise existing space for the next three to four years until new office space hit the market. This was a much smarter solution than paying rent on a long-term lease, which may be at an above-market rent in a few years time.

“Owners want to create a sense of concern for users of space and get people to make commitments, but there will be a lot less pressure and more of a normal market in a few years,” he told WA Business News.

“A lot of space being used right now is project space, and a lot of that will come back into the market, and the new developments being proposed will also add space.”

Mr Swale, who started Australia’s first tenant representative business 14 years ago, said the tenant representative sector had become part of mainstream property business, with most tenants understanding the benefits of using a tenant representative.

“The bigger  organisations and professional firms are using tenant representatives unless they have their own internal property divisions, and the smaller groups that are not using them are either not aware that they exist or don’t understand the benefits of using them,” Mr Swale said.

“What we do isn’t just one-off transaction based; we aim to have an ongoing relationship with clients and help with  premises procurement, ongoing lease management, rent reviews, fit-out  project management and any  other tenant-related issues that may come up.”

On the other side of the negotiating table, and with a more sceptical view of the flexibility of the current market, Knight Frank state director, asset services, Ian Edwards said the role of tenant representatives in the current climate was to act quickly and get clients in on leases.

“This is a total lessor dominated market, and to pretend otherwise will have tenants out on the street,” he said.

Mr Edwards said rent for premium space would go well above what was required for a new building, reaching $425 per square metre this year, $450 in 2007, and $475 in 2008.

It is understood developers are asking for rents at just over $400/sq m for new developments.

“I would encourage tenants to use a tenant advocate, whose role is to provide honest and salient advice, but sometimes that advice is to take a quick deal and pay the asking rent to ensure you get space,” Mr Edwards said.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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