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How to get the best office deal

Translation of an article that appeared in Finance, Slovenia’s daily financial newspaper, on Monday 16th February 2015

By, Jacqueline Stuart – Director of Slovenia Invest

 

The office rental market in Ljubljana is buzzing, we have received 78 enquiries this year so far, and we have already done seven deals. Companies are moving for many reasons, most realize that with drops in rents of up to 50% in some buildings they can pay a lower rent in better premises. Others need more space as their businesses grow. The really positive indicator so far in 2015 is that four out of seven deals we have done this year are to brand new Companies.

 

Don’t pay commission

Most real estate agents in Slovenia try to charge both the landlord and the tenant. This is like a lawyer defending and prosecuting in court, it does not work. We at Slovenia Invest only ever charge fees to one party, usually the landlord. We do not believe we can properly represent both sides, as each has diametrically opposed interests. The landlord wants the highest rent possible and the tenant wants the lowest rent possible. So, if you are dealing with an estate agent who is trying to charge you fees, just say no and take your business elsewhere. There is 30% vacant office space in Ljubljana, and vacant space in most other cities so it’s a buyer’s market.

 

Have a good look round

The more you look at different office options, the more likely you will find the ideal space. Also if you have a few offers you are in a good position to negotiate for the space you like best. It is time consuming viewing different premises but your workspace is very important and if you move it is likely to be for at least three years. It is worth spending time to find the best option. Your office is home for most of your employees during their working hours and they are going to be more productive and happier in a good environment. Your office will also play an important part in how your Clients perceive you – it says a lot about what kind of Company you are.

 

Make sure you know about the extra costs

This is a good time to negotiate hard. Nearly all landlords have vacant space, and in most newer buildings significant vacant space. Achievable rents are 10 to 15% below asking price, sometimes more. There is more than one way of reducing the rent. A rent-free period reduces the effective rent paid. Remember the longer you are prepared to sign for, the more leverage you have. If you sign a lease for only one year the landlord will have increased letting expenses and the possibility of a rental void. If you sign for five years you will have a better chance of negotiating the rent down – you can always ask for a three year break option.

There are no rules about service charges in Ljubljana, every building is different. Some landlords charge rent for only the net space occupied. Others charge additional rent on a percentage of the common space such as corridors, staircases and reception. Some do not charge rent on the common space, but they do charge service charges on this ‘add on space’. Many buildings in Ljubljana, particularly older ones from the socialist days, are inefficiently designed and have a great deal of common space, and poor insulation. A modern office building will have 15 to 20% common space, some older buildings up to 30%. In some office blocks individual office suites are metered, and you pay for what electricity and water you use. In others, the costs are split between all the tenants proportionally. Sometimes individual floors are metered and the consumption of each floor is charged to the occupants proportionally. Service charges vary hugely, from 2.3€ to 5.5€/m2. These typically cover cleaning, heating and lighting of common parts, property management, and sometimes a concierge. In some cases individual consumption of electricity and water is included, in others not. Ask to see a copy of the service charge statement for the previous year. We have seen many cases where agents give erroneous information to potential tenants about service charges. Obviously a new building with good insulation will consume less power to heat and cool than an older one. Land and property tax is another area to watch, most landlords pass these taxes on to tenants. These taxes may rise in Slovenia and this is something that should be factored in to your budget.

 

You need less space than you think

Most multinational companies are downsizing by adapting their workspace. Many are adopting an open plan unallocated desk system whereby workers take whatever desk is available. Small meeting rooms and chill out zones provide privacy or peace when required. This system supports learning, collaborating and socializing. Accenture, a global consultancy, recently piloted their ‘Workplace 2.0’ strategy in a new Houston office. The results are impressive. Their office went from three floors on over 6,000m2 to 2,300m2 on one floor, whilst still housing more than 800 people. Like many Companies, Accenture found that many workstations were empty for long periods of time because workers were collaborating in team spaces, project rooms, or offsite. Accenture changed to benching for workers who need different spaces during their time at work. They move seamlessly from bench, to enclosed space, to café, to lounge area. Their work weaves between meetings, informal collaborations, and focused personal work sessions. The Accenture workforce voted the new offices an outstanding success, in a study that measured Interaction with Clients and Customers, Networking and mentoring, Impromptu collaboration, and Collaboration with team members. The overall improvement was 26%. It is worth spending a little time and money on an architect with experience in designing workspaces to think about how your new office can best meet your needs.

 

Don’t even think about buying

Some occupiers want to buy office space but this is inadvisable given the uncertainty in the office market. The value of office space has dropped significantly since the peak in 2008, and it has further to go. Acquiring office space also uses valuable Capex that could be better utilized by most companies to create growth. If you rent office space, it is the landlord’s responsibility to maintain the property and deal with any problems – not yours, freeing your time for what really matters – your business.

 

FRAME 1

Ask for incentives

Most landlords are prepared to provide incentives to new tenants. The most common incentives are a rent-free period, and a free fit out. Some also provide a number of free parking spaces. If you are prepared to sign for 5 years, you could ask for 3 months free rent. If you sign for 3 years you could ask for 2 months free rent, and for 2 years then 1 month. The landlord might not agree but it never hurts to ask. If you sign for anything more than 2 years, the landlord should be prepared to pay for a basic fit out. This includes demolishing or building knauf walls to your requirements, and installing all cabling. If you need some special fit out such as glass partitions, you should expect to pay a contribution. The landlord should hand over the office suite with either a timber/laminate floor or a professionally cleaned carpet.

 

FRAME 2

7 Golden Rules

  • Don’t pay commission
  • Have a good look round
  • Offices trade at 10 to 20% below asking price
  • Make sure you know about all the extra costs
  • You need less space than you think
  • Ask for incentives
  • Don’t even think about buying

 

FRAME 2

ASKING PRICES:

CITY PRIME RENT €/m2/month SECONDARY RENT €/m2/month
Ljubljana 11€ 8,5€
Maribor 9€ 6,5€
Koper 12€ 10€
Novo mesto 8€ 6,5€
Kranj 8€ 6€

 

 
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