Some negotiations in commercial real estate brokerage are quite slow and difficult. You can be working with sellers under pressure that fail to listen to the trends and feedback from the market, and buyers that are offering unrealistic prices.
The same can be said about leasing with unrealistic landlords asking high rents and tenants that want the best incentives for occupying a property or premises. The negotiation equation can be difficult and slow.
To help with property negotiations you have a number of concepts to use and also some tools to bring into the debate. For example:
- What you say is important but you must have facts to back up the comments.
- Each party will have pressures and targets to work through.
- The trends from the market are factual and proven.
- Every year and sometimes during the year, specific peaks and troughs occur with property demand and inquiry.
Any property negotiation is a combination of a number of things including what is said, seen, heard, done, and proven. As the commercial real estate broker seeking to grow your business and your market share, it pays to bring all of those facts into play with your property negotiations. Practice is required to get the results you seek from sale and leasing negotiation.
Some Tools to Negotiate
Here are some valuable tools to help you with your next transaction offer and property negotiation, be it as a sale, lease, listing, marketing budget, or promotional strategy. Preparation is the key; professionalism and knowledge will carry you forward.
- Inquiry Rate Charts – Track the inquiry coming in to your office so you can quote the numbers of inbound calls, what people are looking for, and where the inquiry is coming from. When you can prove what is happening with inquiry, the sellers, buyers, landlords, and tenants connecting with you tend to listen. Know your inquiry types and numbers.
- Price Trends – You can chart the prices within a property type for a city or suburb, and break the price down to a value per unit of space (square meter or square foot). That chart will show price trends over time and will give a good indication of how any listing priced today will compare.
- Rent Trends – What are the rents doing? Understand the differences between net and gross rents and the trending patterns in each case. Are there more net rents being negotiated or gross rents? Who is driving the typical lease deal today, tenants or landlords?
- Incentives – Lease incentives may be a driving factor to pull in the inquiry from tenants, convert a lease negotiation, and solve a vacancy. What is the percentage of incentive offered for a typical lease deal when compared to the value of the lease over the term?
- Outgoings Costs – When you look at the cost to run and own a property, the outgoings will impact the net return. Understand what has been happening to outgoings costs and how that is changing. What outgoings can you recover from the tenant as part of the lease deal? What type of lease can you use to help the landlord with the investment performance for the property?
- Yield – When you compare the passing net income against the potential and realistic price for a property you will get to a factor of yield or return. High quality properties will usually sell at high prices against net income. On that basis the yield will be lower. Conversely average to poor quality properties will sell at low prices against the rental return, therefore driving up the yield. The price in that case is driven by the risk factor involving a lower quality property. Understand your yields and what they are doing. You can use these numbers in any property negotiation.
- Time on Market – As we move through any calendar year, there will be times where properties take longer to sell or lease. Track your times on market and know why those times fluctuate.
- Marketing results – You can see and prove quite clearly the results behind marketing strategies and processes; some elements of marketing work better than others when you look at the typical sale or lease. Show your parties where necessary how some marketing methods are far more successful than others.
- Database List – You can use your database and its size and type as a point of leverage in attracting a client to list their property. It stands to reason that a high quality database will be a real attraction to a client wanting to get a result from their property activity or challenge. Market your listing services using your database facts and advantages.
- Supply and Demand – When you get some newer property developments coming into the market, the balance of prices and rents will change. In commercial real estate the future supply depends on demand, and demand depends on business sentiment. It’s a simple equation that is worth remembering. Watch the upcoming development applications for your location.
All of these things are provable facts that will help you with many commercial real estate and property negotiations. Keep the required facts, charts, numbers, and details close at hand. When you need that extra point of leverage to close on a negotiation, use them with skill.