A commercial property guide for SMEs

The ongoing pandemic has hit almost every sector and industry. The vast majority of small and medium-sized enterprises (SMEs) have naturally faced significant challenges. For businesses of all sizes, rent and property costs are the second–highest cost centre after the workforce. As a result, especially for SMEs, making the right workplace decision, and getting the right deal for the business is critical. While SMEs can review our guide on different types of office spaces to understand specifics, it is important that businesses focus on the short term as much as they do their long-term workplace strategy.  

In addition to advice on commercial real estate strategy, SMEs deserve the full picture on ‘double–dipping’ within the commercial real estate industry (firms advising both landlords and tenants) and the implications this can lead to in terms of securing the best deal on office leases from the point of view of the occupier.  

Due to the impact of COVID-19 on the cash flow of businesses, as firms review their commercial real estate set-up and advisors, increased awareness of the ‘double–dipping’ culture may help to prevent businesses from getting short–changed and not securing the best possible deal. Indeed, a greater understanding of the issues it raises could help to change the industry for the better. 

The need for a trusted real estate advisor 

SMEs rely on the input of third–party professionals to fully understand the market and make informed decisions within it. In an ideal world, a commercial property agent should be in a position to provide this assistance in an up-front and frank manner. 

Typically, a business will set out its needs in terms of preferred location, property type, size, timing, and budget. A commercial property agent should then be able to steer the business towards the options that best meet these needs, all the while acting impartially and with integrity. Business leaders look to their commercial property agents for advice – and the natural assumption will be that the guidance they are receiving is in their best interests, in a similar way that they would expect this from other types of professional advisors. 

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The dual-agency model 

A lot of the biggest firms in the marketplace are ‘dual agents’. This means that in addition to representing prospective tenants, they also represent landlords and investors, providing a range of services and advice aimed at maximising the rental return and by proxy the investment value of a building. 

In this type of set-up, there’s a question mark over whether the advisory business can deliver a truly fair deal for both landlord and tenant. 

In real life, if a dual agency is approached by a business looking to them for advice and representation on a deal to secure a particular office, and one of that agency’s longstanding clients happens to be the landlord of the same building, the obvious question is whose interests are going to take priority? 

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The safeguards: are they fit for purpose? 

While there’s nothing to stop agencies from taking on instructions from both landlords and tenants, all agencies are bound by the general legal duty to exercise reasonable care and skill in performing their contractual duties with their client. 

There are also broad minimum standards that regulated agencies have to meet before a conflict of interest can be taken on. This means that the conflict has to be specifically referred to in the retainer (the contract between the client and the agent), or else the client has to give ‘informed consent’ to it. 

To continue to act for both landlord and tenant while staying on the right side of the regulatory body, the Royal Institution of Chartered Surveyors (RICS), agencies tend to rely on ‘information barriers’ that act as a firewall between staff members or departments acting for landlords, and those representing tenants. 

These measures aim to prevent the sharing of information within firms, thereby averting the type of situation whereby firms use what they know about prospective tenants to get the best possible arrangements for landlords. But the research suggests that these walls are prone to be breached.  

We at DeVono, are proud of our ability to provide the strategic and tactical support that our position as a ‘tenant-only’ advisory practice affords us – delivering genuinely independent and conflict-free advice. Every client of DeVono can expect to receive this from us. We are the UK’s leading occupier-only commercial property advisory firm and specialise in providing real estate solutions to support a client’s business objectives. We are committed to what we do and are experts at helping you to understand the relationship between the market, support mechanisms on offer, and how property decisions will impact your business. 

We are here to help you and advise you on your commercial property need. Contact us at info@devono.com or +44 (0) 20 7096 9911.