As the return to work inexorably gathers pace, the Aberdeen commercial property market is at last showing heartening signs of life.
According to recent figures, office take-up in the Granite City during Q4 2021 was the strongest of the year, with 91,000sq ft transacted across 14 deals – a 77% increase on activity in the previous quarter.
But, hidden in these encouraging stats is the rather shocking revelation that fewer than one-third – 29%to be precise – of tenants involved in sales and lettings took professional advice before signing up to leases which will bind them and their businesses well into the future.
It is difficult not to suspect many these tenants are going down the rabbit hole of false economy.”
Even more alarmingly, in the industrial sector it transpires that only 10% of tenants sought the guidance of property professionals – experts who not only have an acute knowledge of the local commercial scene but are immersed in the market on a day-to-day basis.
This could have serious implications as the years roll on for occupiers who may well be saddling themselves with unnecessarily onerous agreements which will cost them significant amounts of money and could land them with costly long-term liabilities.
It is difficult not to suspect many of these tenants are going down the rabbit hole of false economy, given cost savings and expense reductions are at the very top of a lot of companies’ agendas.
Too many are effectively self-negotiating deals, perhaps influenced by weaker market conditions.
This in turn has resulted in tenants being in a stronger negotiating position, against the backdrop of weak occupier demand and an oversupply of available stock.
While landlords are keen to attract tenants and expect to offer incentives to secure a lease, they will, by default, want to obtain the best terms they can.
Be prepared
Any tenant entering into an agreement without proper knowledge is, therefore, highly vulnerable.
For tenants, it is very easy to do internet searches and make arrangements to view properties as you would in the domestic market.
But as the statistics clearly show, too many are failing to seek out the advice of a local property expert and are, therefore, missing out on a much better deal.
In doing so, they are also leaving themselves exposed to unnecessarily onerous long-term liabilities – such as fixed rent increases – or overly onerous repairing obligations.
Representation by a local property professional, typically a chartered surveyor and a member of Rics, should not be overlooked.
Any associated cost will almost certainly be covered by the financial benefit or savings their involvement delivers, together with peace of mind that optimum terms have been agreed and, as far as possible, exposure to unnecessary liability has been mitigated.
By way of example, landlords will typically try to agree commercial leases on full repairing and insuring terms, which are only really suited to brand new buildings.
An unrepresented tenant, in agreeing such a lease, could be disastrously exposed and required to return the building in a better condition to that in which they accepted it.
With the application of the correct knowledge, there are simple ways to contract out of such a situation and reduce liability, but it needs expert input.
This is also the case, with rent review provisions. After such a challenging period in the market, landlords are leaning towards fixed rent increases, linked to CPI (inflation) or other indices, resulting in tenants being tied into artificial growth in rents, rather than the preferable option of tracking the market.
With the right advice, tenants can save money and reduce exposure.
Stuart Johnston is an Aberdeen-based partner of DM Hall Chartered Surveyors and also leads the firm’s north commercial property team.
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