Commercial Real Estate Investment Strategies – Government Tenants Can be Useful but Challenging

When it comes to leasing premises in a commercial investment property to a government type tenant, the issues of leasing are always a bit different than the ‘standard’ and in most cases special considerations are required by the landlord and the leasing agent.  The lease terms and conditions will be specially constructed for the location, the building, and the operations of the government department.

The big question to ask from the outset is, ‘Will the new tenant be of real benefit to the building?’   Some government based tenants have special needs from an occupancy perspective, and the way in which they interact with the public will present special challenges from a building operations and security perspective.  That can bring operational costs to the property owner.

Occupancy Issues?

Every landlord likes rental and tenant stability for the long term; certainly they get that with a government connected tenant, however there are a few other issues that come with the government occupancy process that should be considered.  Here are some ideas to help in that next lease negotiation:

  1. Security – Will the tenant require special security and screening infrastructure? If that is the case the building should be reviewed for suitability and impact.  There will also be security costs associated with the occupancy.  The lease should direct these extra costs to the tenant and their monthly rental invoice.  The extra security and operational costs can be loaded into the outgoings contribution made monthly by the tenant.  If the tenant drives operational costs for the building up, then they should pay the premium that is generated.
  2. Does the Tenant suit the building? – Understand the existing tenant mix in the building and determine how a new government based tenant will integrate around the existing tenant mix. Will the new tenant place greater pressure on building access and customer use or movement?  How will the other tenants in the building operate their businesses around the new occupant?
  3. Customer Profile – The new tenant may have a particular typical customer profile that places pressure on current operational standards and security. Special access thresholds and infrastructure may be required at the front of the building, on the building entrance points, and in the lifts in moving people to certain floors.
  4. Car parking – The movement of tenants to the building and through the car park should be considered for necessary changes or special signage. Security thresholds will also be required at the car park gates and in lift access points from the car park into the building.  How will that work for the new tenant and their staff, but also the other tenants across the property?
  5. Lease terms and conditions – It is very likely that the new government based tenant will bring or submit a special lease document to the landlord to consider.  Review the document for uniqueness such as those in outgoings arrangements and recoveries, occupancy terms, access, security, work day duration, rent reviews, property use, and fit out design and or impact.
  6. Staff needs – How will staff move around the building and to special high security areas? Will the building and the tenancy be operating extended hours?  All of these things are considerations in planning the new tenant placement.
  7. Essential Plant and Equipment – The new tenant operational changes or pressures on the building will impact the use of plant and equipment that will typically lift energy and operational costs. Know the building in its current operations and costs, and then look at the premiums that will arise. Can the landlord recover those costs and how will that be done?

So the point of all this is that government based tenants are useful to a commercial investment property, but they do place pressures on the respective assets.  Allow for these things in the lease negotiation and brief the landlord accordingly.

Comments are closed.