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The New Trend of Tenant-Only Broker Representation.

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The New Trend of Tenant-Only Broker Representation.

  The current environment of markedly lower vacancy rates, strong absorption and consistent rental rate increases indicate that commercial real estate (CRE) across all sectors is increasingly an “owner market.” Statistics from Ten-X, the innovative online platform connecting buyers and sellers worldwide to search, list and transact properties, tell the story. In the office segment nationally, vacancies are forecast to fall to 15.9 percent at the end of 2016, and average rents exceeded their $25 square foot pre-recession peak earlier this year. The industrial and apartment markets are outperforming as well with PSF/per unit pricing increasing 16.4 percent and 15.5 percent respectively year-over-year. “From a market perspective the industry has seen a complete recovery in values,” says Peter Muoio, Ph.D. EVP and Chief Economist at Ten-X. In this context, the question of the benefit of tenant-only representation by commercial brokers is interesting to dissect.

Tenant Only Now?

  Historically, in CRE “owner markets” when demand typically exceeds supply and fundamentals favor owners over renters, as the current dynamics indicate, tenants have less leverage to negotiate their leases. Conversely, as was the case for the years following the financial crisis and CRE downturn, tenant-only representation expanded as owner capacity necessitated concessions on pricing and improvement options.

Now, however, despite the tight market, tenant representation is gaining traction beyond the macroeconomic trends. In Orange County, CA, the home of Ten-X, tenant-only representation firm Hughes Marino has expanded their reach across northern and southern California, utilizing a 100 percent tenant-only model. Yet, even the large global firms: CBRE, Jones Lang LaSalle, Colliers and others are integrating tenant-only teams into their corporate architecture. At Ten-X, the leadership team has focused on building a broker platform, which can assist in deal flow facilitation. Tenant representation brokers can now differentiate their services alongside investment sales and landlord representation.

Advantages.

  The rationale for commercial renters to seek out tenant-only representation is a straightforward proposition; the firm is only about one thing, finding the best deal for their client. As Hughes Marino’s site indicates: “Tenant representation only, this ensures zero conflict of interest, as our sole fiduciary duty is to act in our clients “best interests.”

For tenants, peace of mind in this regard is a critical aspect in their decision. Equally important though are three considerations, which Omni Realty Group, a Pennsylvania CRE tenant advisor firm, believes should be on the minds of any commercial renter pursuing new space

-Unbiased Advice
-The Benefit of Specialization
-No Cost to the Client

  That last point is particularly interesting for property owners as well. According to NAI Global, an international network of independent CRE owner-operated firms, the expertise of a tenant-only representation “broker will save a company 4-5 times the cost of their fee, which is typically paid by the landlord.” Owners considering their tenant lease options may look to this telling statistic as a proof point for working with tenant-only brokers. The quality of the commercial renter, the structure of the deal and long-term flexibility and accommodation are important variables in the final negotiations.

Finding the Tenant-Only Broker.

  When a commercial tenant is looking for space, the assumption by brokers: landlord or tenant representing, is that their services are the means by which potential renters will discover available properties. That supposition may be in considerable jeopardy, according to a Hughes Marino piece, which discusses a study examining tenant search habits. “The report indicates “that 59 percent of respondents first go to online tools to search for properties, while only 23 percent start out using a broker.”

This dynamic demonstrates how technology is changing the CRE marketplace and the importance for all professionals in the industry to engage with innovative partners such as a marketplace services company, Ten-X, listing and search firms such as SpaceList or property information services like Real Matters.

Services.

  As the CRE business evolves, traditional brokerage firms and tenant-only operations will distinguish themselves in the market. For CRE renters and buyers looking to a tenant-only option, Hughes Marino recommends firms that specialize in an array of situational transactions:

-Leasing
-Relocations
-Renewals and Restructurings
-Expansions in the Existing Facility
-Contractions and Consolidations
-Lease Buyouts and Terminations
-Anchor Tenant Development
-Build-to-Suits
-Purchasing a Building
-New Building Construction

As with any industry, there are secular and macro trends, which will shape events; however, the tenant-only representation model is one that is here to stay, because it provides another differentiator and competency for brokers, clients, owners, tenants, and developers.

The New Trend of Tenant-Only Broker Representation.

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  • Sharkz

    A great tenant rep broker/team at any solid firm > any firm that focuses solely on tenant-rep, A tremendous amount of critical G2 comes from your agency professionals.

  • John Doe II

    As somebody who spent a few years being an exclusively tenant rep broker, I will say that it is merely a line to feed people to get business. The reality is that trust is the highest measure by which you should select somebody, not whether they are tenant only or not, because tenant reps have less information, period.

    My advice to a corporate tenant seeking representation would be to get a tenant rep broker to co-broker with a landlord guy (or gal) for representation. Tenant reps (remember, I was one of them) simply don’t have the information to negotiate effectively. They may be good at negotiating the nuances of a lease that are valuable and typically are forgotten or not focused on by landlord reps, but if you combine the power of both, you will more likely than not have a winning transaction on your hands at the end of the day.