Office space glut opens door to tenant reps
Commercial tenants looking to fulfill their ideal space requirements in Warsaw are facing a problem unheard of just a few years ago: too much choice.
But as tenants become overwhelmed by the plethora of available space in the capital, agents who specialize in assisting businesses find office space are enjoying an increase in requests for their services.
"We're making more money on the side of tenants than on the side of buildings," said Pierre Couderq, a partner with the Couderq & Partners real estate agency.
Even though many tenants say that hiring an agent is a waste of money, the tenant representation business and the fees that agents charge are growing, agencies said.
Property agents market their ability to secure better deals than tenants could have negotiated by themselves. But the price tag for such expertise isn't small.
"Yes, it's expensive," said Stanislas Dwernicki, managing partner of Gide Loyrette Nouel (GLN), a French law firm that earlier this year leased 900 square meters of office space in the Stratos building on ulica Skorupki. The property agency DTZ acted as GLN's representative in the deal.
Agents typically charge at least one month's rent, which in the case of a company renting 1,000 square meters of space in downtown Warsaw could net them as much as $25,000.
Getting what you pay for
Real estate agents say that by hiring professional tenant representation, customers save money in the long term. "There are so many choices, so for companies (tenants) it's better to rely on agents," Couderq said. "Agents get better deals for companies."
Paul Blackman, the head of tenant representation at Jones Lang LaSalle, said that since renting office space is one of the biggest expenses at any company, the consequences of getting locked into a bad deal can be far more expensive than paying a one-off fee for tenant representation.
He said that local property professionals, who understand how the market works, can ensure that tenants get the best possible lease.
Another reason tenants should hire an agent is time, Blackman said, because acquiring office space is an immensely time-consuming and complicated task. Senior management's energy is usually better spent concentrating on a company's core business, he said.
"Companies use lawyers for their legal work and accountants for their bookkeeping. Why should property be any different?" Blackman said.
Some tenants agree. "Looking for offices is not our business," said Dwernicki, who added that he decided to hire DTZ to ensure that no mistake would be made. "I wanted everything to be O.K.," he said.
DTZ presented more than 10 possible buildings to GLN and led the company through office negotiations, which resulted in the company leasing 900 square meters in the Stratos building. Dwernicki said that GLN, which is moving to its new offices in September, has been fully satisfied with DTZ and had even recommended the agency to the French Embassy, which had also been looking for office space.
Some other tenants, however, said they prefer to use in-house property specialists rather than hire tenant representatives. PTK Centertel, a mobile phone company, said it doesn't hire property agents and uses its own in-house real estate department. "We are far more efficient and cheaper," said Malgorzata Gluszynska, director of the real estate department at Centertel. Gluszynska said Centertel used to receive offers from tenant representatives but never acted on them because they added little value and were very expensive.
Others said that hiring an agent was a good option for companies that don't have knowledge of the local market. "Companies that come to Warsaw for the first time tend to use them," said Richard Engel, vice president of Pioneer Investment Poland, a company that manages a venture capital fund. Engel said that his firm has its own property specialist and if it needs to outsource office-deal assistance, it wouldn't hire a property agent. "Personally I would rather use an attorney than a real estate adviser," Engel said.
At the same time, some tenants said the services that property advisers and attorneys offer tenants are not interchangeable. Adam Michon, vice president of the insurer Commercial Union, said that while he doesn't hire tenant representatives or have in-house property specialists, he would use a tenant representative, given the choice. He said there were many "technical tricks" involved in leasing large office space that "lawyers don't know anything about."
Leasing office space is a long-term commitment and "any mistake can be very costly," Michon said. That's why the advice of a tenant representative could be helpful. "If the partnership is healthy and well constructed it makes some sense," he said.
Looking beyond rent
Also, landlords said that tenants represented by professionals receive fairer deals. "It's absolutely worth it," said Rhys Jones, who runs Celtic Asset Management, which represents the developer Swedeprop.
Jones, whose company doesn't offer tenant representative services, said negotiating with a professional can smooth out the negotiation process. "The process goes much faster, much smoother," he said. "Parties don't have to explain things to each other."
But Jones said that by "smoother" he doesn't mean that tenant representatives are not tough negotiators. He added that when tenants represent themselves, they tend to question everything and often miss crucial issues.
These issues include a building's measurements, service charges, add-on factors and fit-out costs, he said. Tenants who don't have experience with those things could miss some important details and pay the price of a bad deal for years. "Many tenants got their fingers burned," he said.
At the same time, tenant representatives said that they were unlikely to win lower rents for tenants but made sure that tenants didn't lose money elsewhere.
"Very often people think about rent, while the deal is much more complicated; that's much more than rent," Couderq said.
Currently about 20-30% of office deals in Warsaw are negotiated by tenant representatives. "This figure is substantially below European or U.K. figures, where up to 95% of deals negotiated involve a tenant representative," Blackman said.
"It's still rare so far," said Andrzej Mikolajczyk, marketing manager with the developer Mahler.
JLL's Blackman said that big multinational companies which have already learned the benefits of tenant representation in developed markets typically hire agents in Poland.
Blackman's JLL lists Credit Suisse First Boston, Citibank, J.P. Morgan, Microsoft and Mobil as clients.
Fees for tenant representation services in Poland are also less than in developed markets. Couderq said that in the United States, the price of hiring an agent could be as high as four months' rent.
In Poland fees are also going up. "Fees are 8-10% of annual rent," he said.
Buying ethics
But as fees increase, so does pressure on tenant reps to do professional work. Commercial Union's Michon said that it was still not easy to find high-quality tenant representation in Warsaw.
Couderq admitted that there were examples where agents, working on the behalf of tenants, had unethical contacts with the landlords of the buildings. "The worst are hidden deals (between landlords and agents): now I pay you nothing, but next time I pay you twice as much," said Couderq, who wouldn't reveal any examples of deals where agents had been unethical.
Blackman said that professional tenant representatives leave no incentive to fill buildings for landlords. "Jones Lang LaSalle only takes a fee from either the landlord or the tenant, never from both unless agreed upon in writing by both parties," he said. "If we have a tenant-representation instruction where we are paid by the tenant, we have no incentive, financial or otherwise, to push them toward buildings where we are the leasing agent."
To ensure that tenants are represented fairly, the tenant-representation contract often includes a success fee, thus increasing the fees of agents if the costs of renting the space are lower. "The lower our rent was, the higher their fee was," said Dwernicki, referring to his law firm's deal with DTZ.
Property sources said that proper tenant-representation contracts give tenants recourse if they discover any wrongdoing against their interest on the agent's side, and thereby limit any risk in hiring an agent. "In my mind the risks of not using a tenant representative far outweigh any risks associated with doing so," Blackman said.
