Tenants' Incentives
The incentives an office tenant can reasonably expect to receive under current market conditions.
A tenant’s break option is a very valuable benefit and all the more so when it looks likely that rents may fall. This is the only practical safety net for a tenant who signs a lease in a falling market and subsequently needs to dispose of it. Even if a significant rent penalty is attached, it is often still worthwhile, when all the ongoing costs associated with the lease are taken into account coupled with the unpredictability of the sub-letting or assignment alternatives. This is now even more relevant, given the withdrawal of the 50% relief for empty property rates.
Shorter, more flexible leases are now an established part of the market and it is unlikely this will change. Revised lease accounting standards proposed by the
International Accounting Standards Board, are likely to mean the full cost of occupational leases will need to be treated as an asset/liability for balance sheet purposes from 2013.
Short leases may still include conditions more appropriate for a much longer lease, often because they have to follow a superior lease. The same repairing obligations, for instance, should be avoided as the condition of the property at the start of the lease is not necessarily the basis for determining what reinstatement the tenant will be expected to carry out when it comes to an end. If the space is second hand, a schedule of condition should be agreed, otherwise the tenant may be liable for refurbishing it twice. On the other hand, if the space is newly refurbished, the tenant will incur fitting out costs, which may have to be written off over a relatively short period, added to which there is the cost of reinstatement on moving out, so a short lease can have disadvantages as well.
Service charges are another area where a tenant can be exposed to above average costs for a short period, particularly in older buildings. The lease might only be for five years but if the landlord needs to replace the lift, a full contribution will still be demanded. Therefore, a service charge cap can also be a valuable concession to agree as part of the deal.
So what about rent reviews? The five yearly upwards only rent review clause, is still included in most leases which are granted for a longer period. However, a coincidental break option is still the closest most tenants will get to achieving an upwards/downward result, given a degree of brinkmanship and assuming the market evidence is favourable!
Signing a lease is much easier than getting out of it later and therefore good advice at the outset can pay real dividends in the future. So to be confident of getting the best deal and avoiding the pitfalls, any prospective tenant should retain an agent to act on their behalf, after all the Landlord does!
We are now almost three years on since rents reached their last peak and whilst the market has readjusted it remains capricious all the same. It does still favour the tenant, but this is not always confirmed by experience.
Unlike earlier cycles where supply increased significantly and take up remained sluggish for a long while afterwards, this time, supply has remained at a relatively low level and eroded in parallel with shrinking demand. We now have a situation where there is a shortage of stock even though demand remains thinly spread.
Rents have fallen back significantly from their peak in April 2008, but an occupier looking for grade A space in the West End, will be surprised by some of the quoting rents still being advertised. The City can still offer significantly better value by comparison.
So what can an occupier in today’s market, reasonably achieve in the way of incentives when negotiating a new lease?
The concession of a rent free period is still an automatic feature of most office lettings other than in very competitive circumstances, or when a lease is assigned. It was originally intended to only cover the period required for a tenant to complete partitioning and any other fitting out works, but is now generally recognised, as being an incentive as well. It is always difficult to say precisely how long this should be, because so many other aspects of the deal will influence what is agreed. However, assuming a five year lease without a break, 6/8 months should be achievable in the West End but 12 months or sometimes more can be achieved in the City. The longer the commitment the tenant gives, the longer the rent free period is likely to be.
Another incentive for the tenant to pay a higher rent is the offer of a shorter lease or the added flexibility afforded by a tenant’s break option. It is now standard practice for small/medium size lettings to be based on a five year term or less and it should be possible to agree a break option after three years, although for larger lettings landlords will still resist this. Break options are usually conditional to a greater or lesser degree. Penalty payments are sometimes attached and you may find the rent free period is either reduced or split either side of the break date. Certain conditions can make it difficult for a tenant to serve a valid break notice and care needs to be taken when it comes to agreeing the heads of terms.
Head lease rent reviews usually influence the timing of a break option in the case of a sub-lease, because the same rent review pattern is commonly imposed on the sub-tenant by virtue of the head-lease conditions for sub-letting. This is a good moment for both parties to have a break, since it avoids the complications of going through the process of a rent review.
The London Office Guide is useful to help tenants find London office space to rent, London offices to let, central London offices to rent and both serviced offices and commercial property space. In addition to helping find London offices to rent and central London office space to let, it is useful for finding London serviced office space and business centres, London agent surveyors and information on the London office markets. Finding office space to let in London can be daunting. The right office space to rent in London is critical for many companies and if they don't find the right London office space to let their business and staff may be affected. Office space in London and London office property to rent can be expensive so companies need to shop around as much as possible. Overall, the London Office Guide is the most useful website and publication to help tenants find London office properties to let and central London commercial space. Especially office space in central London which includes City office space, Midtown offices and West End office space.
Included in the City of London are the postcodes EC1, EC2, EC3, and EC4. On the City fringe are London E1, London N1, London SE1, the southeastern part of London E2 and the southern part of London N7. London E14 includes office space to let in Canary Wharf and offices to rent in London Docklands. It is a separate office market but it competes for many of the same type of tenants the City does. Office space to let in London EC1 includes the areas of Clerkenwell, Smithfield and Farringdon which are east of Farringdon Road. Many media and hi-tech companies find these areas appealing. Offices to let in London EC2 include the areas around the Bank of England and Stock Exchange. Banks and financial companies of course prefer London office space in this postcode. Offices to rent in London EC3 include the area around Fenchurch Street and Eastcheap. Traditional home of insurance companies. Office space to let in London EC4 east of New Bridge Street include the areas around St. Paul's, Cannon Street and Blackfriars stations. London office space to rent is less expensive in the fringe postcodes. However, there is high quality London office space to let in London E1 around Spitalfields, Shoreditch and St. Katharine's. There is also new high quality offices to rent in London SE1 along the southbank and new office space to let in London N1 around King's Cross. There is also a range of inexpensive offices to rent around Angel and Old Street in London N1. Offices to let in London Docklands are mostly modern and the Canary Wharf office space to let is some of the best in all of Europe.
London Midtown is the area between the City and the West End. It is all of London WC1 and London WC2. It also contains London EC1 west of Farringdon Road and London EC4 west of New Bridge Street. Office space to let in London WC1 include offices to rent around Holborn and office space to let in Bloomsbury and also king's Cross. Offices to rent in London WC2 include Covent Garden office space to let and offices to rent around Leicester Square and the Strand. The Midtown office market is divided by Kingsway. Midtown office space to let east of Kingsway competes more with the City. Midtown offices to rent west of Kingsway tend to compete with the West End. Covent Garden offices to rent compete mostly with Soho office space while Bloomsbury offices for rent compete with office space in the West End north of Oxford Street.
The central or core West End of London office market comprises mainly London W1 office space to let. It also contains St James's offices to rent which is London SW1. London W1 offices to rent are in three geographical parts of the postcode. Mayfair, Soho and north of Oxford Street. Mayfair is the south west part of the London W1. Mayfair office space to let is some of the most expensive in the world. Soho is the south east part of London W1. Soho offices to rent have traditionally appealed to advertising and media companies. London W1 north of Oxford Street is divided into several office markets. There is office space to let in Noho which is immediately north of Soho. Soho office space to let is more expensive though. North of Noho are offices to rent in Fitzrovia which is the north east part of London W1. London W1 west of Portland Place is the remaining office market north of Oxford Street. It comprises mostly period office properties converted from residential.
The Greater West End of London includes offices to let in all of London NW1 and part of London NW8 to the north. To the south it includes almost all of London SW1, part of London SW8 and part of London SE11. To the south west all of London SW5, London SW6, London SW7, London SW10 and parts of London SW11, London SW15 and London SW18. To the west all of London W2, London W6, London W8, London W9, London W10, London W11, London W12 and London W14. Office space to let in London NW1 and London NW8 are offices to rent in Camden, Euston and Marylebone. Office space to let in London SW1 includes offices to rent in London Victoria, Belgravia, Millbank, Westminster, and Whitehall. In London SW8 and London SE11 are offices to let in Battersea and office space to rent in Vauxhall. In the south west there is office space to let in Chelsea, Fulham, Earls Court, Knightsbridge, South Kensington, Putney and Wandsworth. The office space to let in London SW11 also includes parts of Battersea. The Knightsbridge office space to let is expensive. Knightsbridge offices to rent compete with Mayfair. To the west there is office space to let in Paddington, Hammersmith, Bayswater, Kensington and West Kensington. There is Hammersmith office space to let in London W6 and Hammersmith offices to rent in London W12. London W14 office space to rent comprises mostly West Kensington.
In some cases serviced offices in central London or business centres in London might be more appropriate for some companies. London serviced office space is ideal for smaller companies. Serviced offices in London are usually available month to month and include furniture and services as well as the space. There is a range of London serviced office space available. From expensive prestige buildings to basic economical space. Before trying to find office space in London and especially central London office property to rent, tenants should refer to the London Office Guide.
