How Much Does a Tenant Representative Cost? An Overview of the Savings

If you are looking to lease a commercial property, there are many options you are bound to encounter. Should you work with a tenant representative? What is the benefit of hiring a tenant rep firm versus negotiating the process on your own? What would representation even cost you?

This article aims to close this knowledge gap in how tenant representation functions and what it could cost you.

As tenant representatives, we understand there’s a lot to consider when buying or leasing commercial real estate, and that the cost of tenant representation can be somewhat confusing at first. Read on to better understand the costs associated with working with a tenant rep and why it's the best path for your real estate decisions.

What Does it Cost to Work with a Tenant Rep?

When you work with a tenant representative, you do not incur extra, out-of-pocket costs. Instead, the landlord funds the fee of this service, which is usually a small percentage of your total gross rent for the entirety of your lease. Usually, they are happy to do so as they benefit from this agreement as their vacant spaces are quickly filled.

Therefore, when you work with a tenant rep, you get their expert research, negotiation, and due diligence at no additional expense to you.

If Tenant Reps Negotiate a Better Deal, Aren’t They Also Cutting Their Own Commission?

Many people think that negotiating a more cost-effective deal for tenants would be cutting the representative’s own commission. This is true. However, a good tenant rep is not looking for a one-off transaction. Instead, they seek valuable, long-term relationships with their clientele, and they achieve this by securing the best properties with the lowest prices, and the best possible terms.

Business Negotiaton

If the client appreciates the work completed, they are more likely to fortify this relationship by handing over their more extensive real estate portfolio to the tenant rep. In doing so, the client and the representative can become strategic partners. This means more deals for the representative while you save more in time and money.

The established business relationship is far more valuable to the tenant rep than what they may lose in negotiating a single transaction's low costs. Therefore, you can be ensured that the tenant representative is working for you, with your best interests in mind.

How Tenant Reps Save You Money In Commercial Real Estate

The market knowledge of tenant representatives equips them to work on your behalf to save money. They find more cost-cutting opportunities through extensive market research and expert negotiations.

They Negotiate Better Terms with the Landlord

Not only do you not foot the bill for the service of a tenant rep, collaborating with one will actually significantly reduce the long-term costs of leasing a space. Tenant reps negotiate with landlords every day and know common tactics they may employ to hide fees in the clauses of agreements.

This knowledge may lead you to find deals and properties you didn’t even know existed. A typical corporate lease can vary from 40- 80 pages. If you lack representation and market intelligence, that is a lot of room for you to be taken advantage of. By working to protect only your interests, tenant representatives can negotiate the optimal price solution.

Negotiate Lease

Many people only consider the initial base rent when working to understand the overall price. However, many factors contribute to the total cost of occupancy, including escalation rate, build-out costs, and operating expenses. It’s never just base rent.

With these factors in mind, representatives can leverage the prospect of your tenancy against landlords’ drive to fill properties with tenants. In an age where many companies are seeking to downsize their office spaces, this potential tenancy is extremely valuable to landlords, and your tenant rep knows this.

By employing this knowledge against the current market, your representative can save you big.

Their Network Has More Commercial Spaces to Choose From

Your tenant representative will provide you with an unbiased analysis of each prospective site’s true cost. This service is opposed to the experience of working with a potentially conflicted broker who may represent both landlords and tenants alike.

When working with a corporate services broker, the properties they might present to you could include properties in which they also represent the landlord. They are obligated to ensure that the landlord maximizes their profits. Therefore, they have an incentive to not negotiate the lowest price for you since they profit from both sides of the deal. Not only will this potentially raise costs for you, but it will also limit your options to save money elsewhere.

When you work only with a tenant rep, they do not have an obligation to any of the properties they show you. They will undergo extensive research and are not tied to specific spaces or landlords. As a result, they are open to more expansive marketplaces.

They Find More Places to Save

This broader focus expands your cost-cutting opportunities. For example, your tenant rep may find that a simple shift in geographic preference to neighboring regions can save you drastically in taxes, labor costs, and transportation.

Essentially, your tenant representative can find you more room to save. By carefully analyzing your needs in conjunction with the current market, they will ensure that you are not only cutting rent costs. They open the door to additives that may include lowering your portion of build-out costs, making sure you get the right amenities, negotiating periods of free rent, etc by encouraging competition amongst landlords.

In digesting all of these factors, tenant representatives are in a better place to negotiate on your behalf. With a tenant rep on your side, the negotiation process is far more extensive. They can employ their industry knowledge against the asking points of landlords to level the playing field for their clients.

As most tenants only enter the market every five years or so, when their lease is up, they are not necessarily in a position to compete against savvy landlords. Tenant representatives, on the other hand, are analyzing market trends and deals every day.

Acting on behalf of their clients with this awareness allows for a fair transaction where each party is informed and prepared to negotiate.

How Landlords Benefit From Working With a Tenant Rep

There is a chain of who financially benefits from utilizing the services of a tenant representative.

Initially, there is the tenant. They receive expert market knowledge and negotiation at no cost to them. In addition, the savings they encounter in this relationship often yield long-term financial benefits.

Then there is the tenant representative who benefits from sharing their expertise as they forge mutually profitable relationships. Through securing these ongoing deals, they are also able to establish a valued and trusted reputation which can lead to a larger base of clientele.

The final party that advances from these deals is the landlord. Landlords make money by filling their empty spaces. Therefore, they are typically looking to fill these vacant properties as quickly as possible. If not, they risk losing huge sums of capital.

The tenant rep solves this problem by connecting credit-worthy tenants to open commercial spaces that may be putting a strain on the landlord’s wallet. As a result, landlords are often happy to fund the tenant representative’s fees as they bring business straight to them. In fact, they usually budget for such services.

All said and done, the services of a tenant representative can initiate a win-win-win scenario for everyone involved.

Interested in Working with a Tenant Rep?

Now that you know what tenant representatives cost and what they could potentially save you, you probably have a better idea of whether or not you want to enter business with one. Since they come with no specific fee and direct you to significant, long-term savings, working with one could be a wise solution for your company’s real estate endeavors.