Considering Office Relocation?
OCT 2021 | LAST UPDATED
SNAPSHOT
A relocation to a new office premises entails a much stricter adherence to the appropriate transaction timeline.
The best approach is to stick to an agreed-upon schedule for completing each stage of the process from hiring an designer, to property inspection, to letter of intent execution, all the way through construction/furniture installation and move-in.
OFFICE RELOCATION CONSIDERATIONS
Relocation Timeline
On average you should start to plan your office relocation 7-12 months in advance, depending on the size of your requirement.
Most tenants will work back from their lease expiry date, making allowance for moving out of their current space early, to factor in sufficient time to reinstate but many tenants still take are too an optimistic view over the time schedule which leads to serious complications later.
To reinstate your current premises can take between 2-6 weeks, fitting out 1-3 months, ordering of materials before fitting out can take over 1 month and settling the legal paperwork can take longer than many expect and before you know it you are already behind schedule.
Transaction Manager
Selecting the right expert can result in lasting benefits to your business, from identifying more options to cost savings and operational efficiencies. How to select the right advisor? Consider the factors below.
- A deep knowledge of your business industry
- Relevant experience
- Availability and commitment to your needs
- Conflicts of interest
Designer & Contractor
Hiring a sub-standard vendor can jeopardize an office move. A vendor who can’t deliver on time can cause other delays further down the line and additional costs can multiply.
Selecting the most suitable designer / contractor always seems easier than it really is. Since it is assumed that all designers are created equal, the temptation is to hire the vendor with the lowest price.
Most relocation managers will be seeking references of satisfied customers who used a specific designer before but no vendor will furnish names of dissatisfied customers.
The best approach is to determine the typical project size and scope in which your designer has the most experience. You want to match your project as closely as possible with your designer’s experience.
To learn more, refer to the SAVVI office design and fit-out guide here
RENEWAL?
There is a lot of insight the landlord factors into its negotiation strategy, some of which it controls and can accurately estimate and some it doesn't.
Landlords have detailed knowledge of the real estate market and, more likely than not, its proposed rent will be on the high side of where the market is trending.
For landlords there are significant economic differences between a renewal transaction and a new lease. At this point you have some choices:
- Trust you are receiving a close-to-market offer. Compile some “market research,” and negotiate directly, accepting that the market is what it is and you have other things to do than to spend more time on this non-revenue-generating activity.
- Tour buidlings you like, talk to agents and get some proposals to use as negotiating leverage with your landlord and try to agree to a deal.
- Engage a commercial real estate advisor for representation. Opting to hire a qualified advisor, who will develop a negotiating strategy and deal directly with the landlord’s representative, confronting contentious issues and advocating for your interests. An advisor will develop a financial model to analyze how renewing or relocating would impact your business and the landlord’s business will results in the best deal for you while maintaining your positive relationship with the landlord.
FINDING A NEW OFFICE
The best approach to leasing office accommodation should focus on location, space and budget.
Location & Your People
Before considering a lease renewal or relocation, analyze your employees’ commuting and space-use patterns.
Attracting and retaining talent is likely your greatest challenge. The location of an office is of paramount importance for operational efficiency and perception within the business community.
Consider how the space aids or undermines the productivity of your people. Similarly, the availability of amenities and supporting facilities has been proven to reduce downtime and help increase productivity.
In addition to productivity gains or losses, companies see the bottom-line impact of their real estate decisions on retention, recruiting and hiring costs.
SAVVI can assist companies in this regard, by providing “sector” specific information on the market, which can then form part of the decision making process.
Space Requirements
The number of employees and the intended use of the space is crucial in determining the size of the proposed office. Similarly, factoring in growth expectations over the lease term (typically 36 months) will be important. If flexibilty is required then serviced offices might be more suitable.
To assist in determining the configuration of the office, SAVVI can prepare indicative “test-fit” plans of each scenario; illustrating how each short-listed office can be set out. These plans can then be tailored to meet the needs of business and used to tender the cost of the works.
To learn more, refer to the SAVVI office design and fit-out guide here
Financial Budget
Office rents in Hong Kong's Central district, for example, are amongst the highest in the world. Therefore a realistic budget, against locational preference, should be set as soon as possible. This will set the parameters for the office search and help manage costs throughout the process.
OFFICE MARKET | HONG KONG
The Hong Kong office market has over the years sustained economic growth, while office supply in the core business districts remain severely limited, physically. This has led some areas to experience sharp rental increases, in what has traditionally been a landlord’s market.
Given the ongoing COVID-19, office rentals are beginning to price in the market sentiments in Hong Kong, landlord sentiments are softening, although Grade A office vacancy rates remain below the 6% threshold when rental growth tends to turn negative.
The positive rental growth came to an abrupt end in late 2020. For the latest unpublished Oct 2021 rental benchmarks, please contact us here.
LEASE NEGOTIATIONS | HONG KONG
With so many real estate variables to consider, we’ve outlined three key factors every business decision maker should consider when negotiating an office lease. To learn more, refer to the Hong Kong Office Leasing Guide here.
Price
Prevailing rents will depend in part on whether it is a landlord’s or tenant’s market when you execute your negotiations strategy. There are many components that make up gross rent, which is often based on current market conditions.
Ask which operating expenses are controllable and whether increases can be capped. A knowledgeable advisor, especially those without obligations to landlords, can help you create negotiation leverage.
Office Fitout
One of the most common office leasing pitfalls we see is tenants focusing most of their attention on rent, but neglecting to spend sufficient time on the capital cost of the leasehold improvements required to house their people.
The capital required to make a space “workplace ready” is equal to about a years’ worth of rent. Tenants need to consider opportunities to reduce this capital cost, and whether a former tenants’ investments, and existing improvements can be used. There are many avenues to finance this capital investment, and tenants should investigate how to get the most value.
To learn more, refer to the SAVVI office design and fit-out guide here
Lease Flexibility
Typically, most leases are negotiated for term lengths of 3 years or longer (up to 6 years), but business needs change over much shorter timelines. Business leaders find it difficult to predict the future, and because of that, building flexibility into your lease is paramount.
Rights of first offer and refusal and options to expand are keys to growth, but what if you need to downsize or get out of your space?
A right to terminate could be a lifeline. Most landlords’ standard subletting provisions are very restrictive, so ask if you are able to sublet to other tenants in the building, and whether you can profit on subletting your space if the market rents have risen.
Understanding termination and subletting provisions are keys to your success.
PARTNER WITH SAVVI
SAVVI provides full market coverage and a single point of contact to support your business. Learn about SAVVI’s date and technology driven office leasing service to generate your business massive savings at zero cost to your business.
We create and source differentiated opportunities and delivers scalable bespoke real estate solutions from small to large real estate proposals with institutional grade expertise.
