How Do I Evaluate and Choose the Right Broker ?
While these may seem obvious, it is crucial to emphasize them:
- Does the broker have local, in-depth knowledge of your target market area?
- How many transactions has the broker executed in this market over the last 18 months?
- Can the prospect share details on the size, type, and location of their last five deals?
- Does the prospect know the local brokers in the area?
- Does the prospect strike you as a savvy, experienced negotiator? If so, ask about their approach and process.
Connectedness not Zoom and Slack
It’s nothing new that headwinds and uncertainty persist with projected earnings and overall markets. But this is partly why return-to-office is being encouraged even mandated. Leaderships are drawing the line on flexibility. They’re discovering that efficiency gains during the pandemic aren’t holding up long term.
Remote workers were/are working harder to “maintain the privilege”, but sustaining efficiency and profitability are paramount now. Remote and WFH four to five days a week isn’t happening. Finally new elements of office culture are taking shape. With customer-facing workers, it’s more pronounced.
Slack and Zoom boosts efficiencies even mentorship, but connectedness and working together in the same room makes a positive difference. Large/medium companies are counting more badge swipes, and SMB is not far behind with its measures.
Granted, San Francisco office space and tech workers seem mutually exclusive, but tenants are done kicking the can down the road with one year renewals. They now know what they need which consists largely of back-to-the-office.
Call 562-304-0614 if you think we can help.
On an unrelated note, we’ve seen a distinct flight-to-quality when it comes to this market. More than a few of our clients are evaluating better space in a better location.
Q1 2023 The Fall Out Accelerates and a Flight-to-Quality Sets In.
The Office Market
Market Trends
For over three years, I’ve been telling my clients, “we still don’t know” regarding movements and trends in local, regional, and national office markets. They were tired of hearing it, and so was I. However, in Q1 2023, significant changes began. Rate hikes, non-repayment of debt, uncertainty, weak markets, rapid vacancies, and highly discounted asset trades have surged in the last 60 days. The anticipated shifts in the office market are now happening quickly.
Tenant Preferences
Tenants are now opting for less space but are moving into Class B+ and Class A buildings with better locations and amenities.
Market Variability
The market varies significantly even within short distances. This means rates, deal structures, concessions, competition, suite sizes, and landlord appetites differ widely.
Work-from-Home Dynamics
Work-from-home is now in its fourth year, and new company and community cultures are emerging. How tenants and companies operate in this new world is highly situational, influenced by factors like culture, leadership, worker demographics, and office design.
Knowledge is Key
In tenant representation, knowledge is crucial:
- Building-to-building
- Broker-to-broker
- Landlord-to-landlord
- Local area-to-local area
Looking Ahead
We know these emails are brief, and we hope they are appreciated. In our next piece, we’ll highlight how some companies are redefining office use, design, function, and vibe.
A changed workplace? Ernst & Young thinks so.
As people have adapted to “the new normal”, it’s become clear that the norms of the past were in fact problems.
The number of the select few trusted people that worked from home has now exploded due to the Coronavirus. For how long, nobody knows, but we are all doing life differently. Now, more people than ever before have been able to experience what it is like to carry out their role from the comfort of their own home or any various combinations between the home, office and with clients.
Intelligent Takes on Work-from-Home (WFH)
The switch to home and hybrid is a major one. What will WFH look like look 3 years from now?
Interaction
Office interaction stops when working remotely. Conversations between colleagues become on-topic and work-related. This might seem like not a bad thing, especially when considering the increased-productivity numbers. However, without those connections and social interactions, lethargy and weariness can set in.
The majority of WFH advantages are clear, and some days you just want to get things done without distractions. On those days, we simply don’t need watercooler time. But finding a balance and a hybrid and flexible model will prove essential over the long haul.
Intention
Ultimately you find a way to get work done. Maybe it’s a second wind at 9 pm. Maybe you are sharp and focused on Friday, but never Monday. Maybe management decides that WFH isn’t a good idea Monday or Friday in the summertime due to all the distractions. Perhaps at a particular time of day, you sit in the kitchen near a window and in the late afternoon on a firm couch. Julie likes WFH her way, but John’s way may be very different, But, they both are very productive.
Then there are the obvious challenges at home. We can feel like we’re not getting much done or feel like we’re working all the time.
What we’re lacking is intentionality.
Apart from a dedicated workspace and strict schedule, we should learn how to create a mental space for home life and one for work life. Your daily commute, coffee break and lunch break go away with WFH. If you benefited from these. you might gather your thoughts before and after work or make phone calls that you wouldn’t otherwise. In place of, you can however add a short walk into your routine to give you that space.
Good work-life balance means discipline
Pre-COVID, it was difficult to leave their work at the office without bringing it home. When working from home, it’s even more difficult to switch off work-mode as it’s right there in your own home.
What’s required, therefore, is discipline. Some people might dedicate specific timeslots in the day or evening when they will not check emails, for example. Others will ensure that their evenings and weekends are for them alone. Regardless, people need to make decisions on their work-life balance that fit in with their family. Once we have decided on our personal rules, the hard part is sticking to them.
Trust and checking in with people
Even though many people enjoy working alone and in their own space, it’s important to keep in regular contact with colleagues, line managers and peers. This isn’t just good business sense, but it also benefits everyone’s mental wellbeing.
It’s often easier to email, and many people prefer this to picking up the phone. However, it’s good idea to vary your communications with your colleagues. Calling, video conferencing, or instant messages are all great communication tools that have their place in remote working.
Avoiding distractions
When you’re at home, you have all of your home comforts around you. There’s the coffee, the refrigerator, the television, your smartphone, social media, your comfy couch and even chores. Procrastination is much more likely at home, and you need to be strict and get into a good routine. If it means using site blockers, timers, the ‘do not disturb’ function on your phone, for example, go for it. Otherwise, half of your day could disappear in distractions. Thoughts of ‘just one more coffee’ or ‘I’ll just put this laundry away’ might lead to working later than you’d planned.
For executives, owners and managers, trust is essential. The company rank and file need to be able to carry out their work without the daily scrutiny of their line managers. It’s important to set clear guidelines from the beginning and have procedures in place to check in with colleagues without being too overbearing. The rank and file won’t appreciate constant monitoring. They might even work better if line managers demonstrate their trust in them.
Takeaway: WFH is situational
What works for some people won’t work for others and is very situational. There seems to be a generational divide between those who enjoy the experience and those who don’t. Younger people – those who’ve grown up with laptops in their homes, for example – seem to enjoy working in their own environment much more. For those over 50, it can often seem a bit more challenging to bring work, especially computer-based work, into the family home.
Ultimately, everyone is different. We all have different temperaments and likes and dislikes of how we want our working environment to be. If you have to work from home, you will find a way to get it done in a way that works for you. We might struggle with WFH for a week or even a few months, but it doesn’t mean we can’t work out the kinks. The transition is tough, but it’s worth persevering to find out what works.
Tenant Conflict-of-Interest per California Law
Simply put, the leasing office or broker cannot advise you objectively. Their loyalty is to the landlord, and they are unfairly influenced. Dual agency is a hot-button issue. While banned in several states, it’s still legal in California. The pitfall is an over-incentivized or unethical influence by the double commission. Disclosure alone isn’t enough.
Dual agency – an unsound practice
For the tenant, general principles render dual agency as unsound practice. The broker’s focus is to increase building value through rent, occupancy and tenant obligations. Their job is to get you to sign the lease quickly because time kills all deals. Tenants should be aware of their rights and the responsibilities landlords have. You can view them here.
It would be unwise to negotiate aggressively on your behalf because this would sour their relationship with the landlord. It comes down to space, budget and the tenant’s level of confidence. A dual agent cannot focus on the lowest and the highest rent at the same time.
Where to find appropriate representation as a tenant – without dual agency
The listing broker’s true allegiance is to the landlord, a much bigger client. Essentially, tenants should use a broker that only deals will tenants and not landlords.
Commissions: All landlords pay transaction costs to keep their building occupied or attract new tenants. Word of mouth and advertisement doesn’t fill their building. The idea of saving money by not having representation or going direct is a misperception amongst small to medium-sized tenants.
When signals point to you staying and renewing, this is especially true. You don’t save by not having your own guy., and “dealing direct” with a “good relationship” doesn’t translate to a better deal.
Ready to commit to a real estate agent?
If you have chosen your real estate agent, ask to see their disclosure agreement. You should try to do this as soon as you can in the game.
Read the agreement and be sure to ask about anything you don’t understand – especially if you’re concerned that something in it alludes to dual agency. With this, you will have a better understanding of your working relationship and you can rest assured that the agency is working in your best interests.
Dual agency, a harmful conflict of interest
Tenant rep fiduciary requires the highest standard and level of care implied by federal law. If the same lawyer were to represent both sides in a case, conflict of interest is unavoidable.
The listing broker is obligated to the landlord…not the tenant
The listing broker’s primary obligation is to get the tenant to sign the lease quickly as possible because “time kills all deals”. This is an industry secret and any honest broker will tell you this. The landlord’s main focus is on maximizing the value of the building through rent, less expense, occupancy, and higher tenant obligations. A listing broker has a fiduciary responsibility to the landlord whose primary goal is increasing asset yield and value.
How is dual agency still legal in California?
Dual agency is a hot-button issue in commercial real estate. Office tenants are better served when they have their own representation. Several states have banned dual agency, however, it’s legal in California. The pitfall with dual agency is that the listing broker may be unethically influenced by the double commission. Since the dual agent receives a commission on both sides of the deal, he/she may become over-incentivized to close the deal at any cost. In this scenario, the interests of the tenant are not met. Furthermore, it is possible that a dual agent may be tempted to not disclose something relevant because he/she will lose out on the double commission.
The listing broker’s primary obligation is to negotiate the highest rent
Based on general business principles dual agency is not a sound practice because a conflict of interest is inherent. A few questions can be answered satisfactorily by both parties. This can help address conflict, however, it does not alleviate the problem. Success in a transaction is gauged by the tenant’s level of confidence with the dollars and terms that are met. The dual agent cannot focus on negotiating for the lowest price and for the highest price at the same time.
California lawmakers attempted to place limitations on dual agents which states that a dual agent “may not disclose what the other party is willing to settle for, without written consent by the seller” and vice versa. However, nothing except the price was addressed, and the ruling on confidential information remained ambiguous.
Using a tenant rep specialist is the way to go
In closing, equal allegiance is unlikely, and the leasing agent can be unfairly influenced by a lucrative long-standing relationship. It’s due to the many prior transactions. In residential sales, it’s easier to contain it, but with office buildings, the listing agent may have done the leasing for 10 to 30 other tenants. Again, sound business principles would dictate that an office tenant representation broker is the way to go.
If you find yourself in an office lease transaction in Southern California and you are wanting to be represented fairly, give one of our office tenant representation specialists a call today for a free consultation at 562-362-6500.
Missed Opportunity
Negotiation efforts to lower the rate by a nickel or dime per rentable square foot per month can fail which leaves other areas to reduce costs. Without an expert on your side, these are missed. Dedicated representation looks at all factors that affect cost, risk and tenant obligations. Motivations and the landlord’s accounting methods are examples. A tenant rep who is a 100% on your side can help you navigate. The Long Beach market commissions are paid whether you use their guy or have your own.
Divided Loyalty & Dual-Agency
Divided Loyalty & Dual Agency
Listing Brokers and Leasing Offices’ Allegiance Lies with the Landlord
Tenants and Landlords are two different animals, each with different goals. The listing brokers and leasing office are beholden to the landlords because the landlord is the more lucrative client. This is where their true allegiance lies. How can they then turn around and negotiate the lowest possible rent for you ?
It would be unwise for them to negotiate aggressively to lower your expense; it would sour their landlord relationship. In fact, it’s fiduciary for them to negotiate the highest possible income for the building.
Until there is competition and representation, landlords almost never give tenants bottom-line economics. If what the market bears is unclear or you are sending signals that you are staying put, your leverage is weakened.
The best case is where there’s no inherent conflict-of-interest, and where it’s ethics and legality to represent you 100% to get the best space at the best price.
Naturally, fees are always a big question. Instead of all the commission going to one party, it gets split between two. You don’t save by not having your own guy advocating and protecting 100% on your behalf. Herein lies the dirty little secret of commercial brokerage.
Parker Advisors Represents the Office User Not the Landlord
Parker Advisors understands the process on both sides, and we’ve built many years of trust and goodwill with brokers and owners for one simple reason – Reduce your lease expenses.