Commercial property: The rise of tenant representatives

Tenant representation in the commercial sector has become standard practice in many overseas countries, and has now started to gain traction in South Africa as there is an increase in the complexities of negotiating a commercial lease.

This is according to Greg Huntingford, the CEO of Spire Property Management, who says Spire anticipates that tenant representation will continue to grow in popularity and will move into the mainstream of commercial real estate South Africa as people looking for space realise they need a property consultant to best represent their interests.

“Already we are seeing more and more commercial real estate (CRE) tenants in SA appointing a CRE representative to protect their interests when negotiating the details of a lease agreement,” says Huntingford.

He says the role of a tenant representative is often less about helping someone find suitable space, but rather tenant representatives are being sought out to provide advice, negotiate and exclusively represent the interests of the tenant.

“Potential tenants are getting smarter about bringing their own representation to the table, and an independent view to guide a tenant is important. The problem with a non-specialist trying to negotiate their own leases is they almost never know what constitutes a good rental agreement, and a tenant representative can do just that,” says Huntingford.

“In an era of increased specialisation, probably no practice in commercial real estate has received as much interest as that of tenant representation,” says Sean Paul, Executive Director of Spire.

He says the tenant rep process begins by evaluating and refining the tenant’s requirements, which vary widely but are always complex, often requiring an analysis of a company’s entire portfolio and determining market conditions. Recommendations may include consolidation, expansion, relocation or renewing an existing lease.”

Paul says a tenant representative is a real estate professional - typically a licensed property advisor or property manager - and thus can provide insights into the commercial real estate in their chosen area.

“Committing to a commercial space, with the associated costs of fit-outs and relocating, and the IT requirements that go with this, is not to be taken lightly, particularly when signing a longer lease,” says Paul.

“Spire believes we will see an ongoing increase in the use of tenant representatives who have a fiduciary obligation to the tenant to ensure the tenant’s needs are met.”

Paul says they anticipate seeing the rise of tenant representatives that specialise in sectors.

“For instance lease negotiations in the retail sector hold their own specific challenges - such as turnover and profit clauses, etc. These can be especially daunting to someone entering this sector, and with the rising entrepreneurial rates in SA we are seeing more and more people opening retail stores for the first time,” says Paul.

Equally, Huntingford says space optimisation and staff productivity issues arise in the office sector, just as client-specific needs are more prevalent in the industrial sector, with logistics being a foremost concern.