Tenants are more vulnerable than ever in the domestic real estate market

This article was originally published in Portfolio.hu.

In today's landlord market, tenants are more vulnerable than ever. What can a tenant agent show in such a situation and what does the client himself value? Valter Kalaus, Managing Partner in Cresa's Hungary office comments.

What do you say to a corporate executive who wants to move his company to a new office, say six to eight months later?

I would quickly be disappointed. It's almost insoluble. There are office buildings in Csurig, there is a strong buffalo leasing market. The vacancy rate is below 6 percent for the whole market, 2-3 percent in the Váci út corridor, but there is also a high degree of consolidation in other important submarkets, with many applying for the same area. The tenants are in a vulnerable position: smaller ones because landlords can't commit to 300-400 square meters in advance, big ones because there are no houses where they can take out thousands of square meters at short notice. They may be a little easier, though, as developments will bring hundreds of thousands of square meters of space to the market over the next few years. Developers are no longer sub-leasing with a company looking for 1,000 square meters, but they are happy to have 4-5,000. They get the land from those who demand less compromise from the landlord and can make a quick decision.

If you are lucky enough to be a tenant candidate, what should a tenant agent look for or warn before signing a contract?

Timing is very important, so you can get ready in time, depending on size, up to two years before you actually move. This is despite the fact that the real estate market is generally considered sluggish. This is not twice the case today, and the pace of change has accelerated. Planning and understanding the challenges of enlargement are important. We spend a lot of time exploring how our client really wants to function, how much space they will require over the years, what features they would like to perform in a special environment, and what so-called traditional physical conditions are.

What common mistakes do companies make?

For example, the tenant candidate says: You need 1000 square meters and then we figure out what the internal ratios are. I think the opposite is true: let's see what the business wants and design the features within the leased area accordingly. Today, HR professionals are a must have in this work. It is a boredom, but it is true that working conditions are now at the forefront of maintaining a good workforce.

The office is also the face of the company, if the location is good and the space is well thought out, interesting and unique, the partners also recognize this, and the staff themselves boast that it is also good to work there.

We also help you find a location and interior design, and argue, among other things, that it is worth it to go to a rental house for up to 1-2 euros because your employees prefer to go there. Ergo, the company does not lose too many people when moving, and those who are hiring are happy to come.

Earlier, the tenant representative's performance was also measured by the amount of savings the tenant could negotiate. For example, how much discount you could get. I suppose this must be forgotten now.

Be careful with the word savings, this is almost unattainable today compared to the terms of the current lease. Today, I think a good tenant representative gets the area where the tenant wants to be.

But why would he need an outside character? Going up to any online office ad space, looking the right house and negotiating yourself.

We see the whole market much more thoroughly and in context. We know in advance where the vacancy will be in a year and a half and this advantage cannot be brought on. We are not middlemen, but real consultants who are not looking for a tenant in the area, but looking for the right area for the tenant.

Obviously, no lone negotiator can win a discount.

Not right now, as the aforementioned locations have made landlords sit back. For example, there are landlords who, for example, do not give rent relief at all. In the meantime, fees have increased by 20-25 percent and there is a situation where there is a bid after the first bid, upwards. Forget the relocation contribution, and nowadays the extra interior design costs are not too much to bear.

That is, there is a high potential for blackmail from landlords.

This may be a strong expression, but it is unfortunate that some landlords are abusing their current position. I do not want to exaggerate: sometimes they charge construction costs, manage tenants and put tenants in a position that is unfair, which may not be in the interest of a serious landlord. In a time of changing business environment over the next few years, the tenant will remember how the landlord treated him or her earlier. And when your contract expires, you will choose another.

This also assumes that the tenant representation team also needs to be trained technicians.

Of course, it is essential - they are with us. Unfortunately, our technical project managers are often faced with poor execution while often encountering overpriced invoices. Of course, there are people working in the financial, legal and HR fields without whom we would not be able to bring real added value to the tenant in a single transaction.

We didn't say it, but so far we've only talked about the "A" category. Given the market, is there significant internal migration, or are many people leaving home offices? How new is the massive 'B' category?

The new or the higher class always has the magic. Moving up is always a message: good for the company, positive changes at the company, etc. There may be major technical differences between the different categories. It is much better to work in a WELL certified building today than in a dilapidated 20-year-old office building. It is clear that buildings with such a rating will greatly improve efficiency. At the same time, operators of "B" buildings are also forced to innovate, modernize mechanical engineering, interiors, etc. Considering many aspects, it is worth calculating whether it is worth the customer to pay a fee of EUR 2-3. We can help with this complex work.

Will there be a higher rate of function switching for office buildings? Or will these become more hotels than some parts of downtown now?

We are seeing these developments as well, but I do not think it will be the mass that determines the office market. I foresee a bigger future for coworking and shared office and serviced offices, either by creating thousands of square feet of classic office space or just opening up in larger downtown apartment buildings.