Representing Lessees On The Office Market In Hungary

  • 19 Sep 2012 8:59 AM
Representing Lessees On The Office Market  In Hungary
Both overseas and in the member states of the European Union, project management in the form of the so-called ‘tenant representation’ has a history of decades in property solution tradition. Eston International now gives a short overview on what advantages exclusive user-side representation has.

On the Hungarian office space market, similarly to Western markets, the letting/sale of first-class office buildings is mostly - and often exclusively - assigned to specialist real estate consultant companies. Of course, these assignments operate on a success-fee basis; therefore the main goal of the agency representing the building is to achieve the highest rental fee and the most advantageous terms for the client, in order to provide a foundation for ensuring an appropriate return in line with investors’ expectations.

However, the user’s side (lessee / buyer) is usually not adequately represented. In negotiating the terms of the lease, they can only rely on themselves. The fact that a 5-year lease of 1 000 sqm of category “A” office space with underground parking places requires a decision on a 1-million-euro investment underscores the necessity of representation of the user’s side!

Furthermore: due to the economic crisis, the average rate of achievable savings may vary from the previous 10% to even 20-25% usually into a lower range, which is probable to generate significant savings to tenants. This, however, is not recognized by tenants with no or only little market experience – they usually relate to list prices.

Eston experts’ experience shows that in many corporate or institutional property searches, the person in charge of the project is convinced that the selection of the right property and the negotiation of the associated lease or sale contract do not require special skills, so the significance of these skills are marginalized or ignored.

However, numerous examples show that the key to an effective solution and a successful lease transaction is not merely found in the obvious indicators, such as nominal “sq m” and “EUR/sq m/month” figures. The total effective cost level depends on a number of other factors as well.

Even in a lease offer, but definitely in a contract, you must know how to read between the lines. This means no problem for an experienced real estate specialist with up-to-date market information on the different buildings, but lessees do not have access to it. Just a couple of aspects that might tip the balance of an initially attractive property solution towards the unattractive:

• Differences in the proportion of the net/gross areas, expressed with a general multiplier. Not only the measure, but also the calculation method can vary from building to building.
• Nominal versus effective rental fee; the effect of inflation trends and interest rates on the rental fee allowances and the total costs of the lease.
• The notion of net-net area used in the real estate business but officially not accredited. This can vary in each building depending on office space demand, as a function of the exact design and workplace layout of the office (depending on the volume of the office space needed, there might be differences in costs even to 5-10% and this becomes evident often only after the compilation of a so-called “space plan”).
• Actual market trends, rental fee variations, and the behaviour of investors can provide an indicator of the ideal lease term for the lessee under the given circumstances.
• Management fees vary building-by-building as well as additional costs incurred during operations.
• The installation costs and technical details included in the rental fee are different for each building, thus, the absence or presence of certain items may result in a difference of EUR 0,5-1,5/sqm/month in the rental fee, depending on the lease term.

Assessing the last 3 years, Eston International sees an increasing trend in tenant representation market (25% growth in Eston’s own businesses). This also reinforces the assumption that more and more companies realise the usefulness of such projects and the implied added value.

As the property consultant does not represent the investors' side and receives no remuneration from them, the exclusive representation of the lessee guarantees the maximum consideration of the lessee-side's needs and excludes any conflict of interest. Another, not less significant factor to take into account is that the consultant's success fee is a mere fraction of the savings that can result from these activities benefiting the users' side.


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