The <a href="https://data.blackpepperonline.co.za/wp-content/uploads/2020/07/FNB-Property-Broker-Survey-Q2-1.pdf" target="_blank" rel="noopener noreferrer">2nd Quarter of 2020 FNB Commercial Property Broker Survey,</a> compiled by FNB Commercial Property sector strategist John Loos, saw office, industrial and retail property markets decline over this period.

This was unsurprising given that the survey was done from late May to mid June, during the strict nationwide lockdown that South Africa was experiencing at the time due to the Covid-19 pandemic. These conditions placed severe limitations on the level of property trade along with many other sectors beyond essential goods.

To compound this, the Covid-19 pandemic most likely plunged the South African economy into a deeper recession than the country was already experiencing up until the first quarter of 2020. However, the report notes that the Covid-19 crisis seems to have overshadowed South Africa's pre-existing economic structural constraints and flawed economic policy, which barely featured in the second quarter survey. As the report noted, this doesn't mean that these problems aren't currently there - but rather that the severity of the lockdown and its comparative economic effects seems to have eclipsed other existing problems the sector faced.

The survey asked brokers for their perceptions of market activity levels, and most respondents were the least pessimistic about the industrial and warehouse property market compared to the office and retail sectors. However, the report noted that industrial property's activity rating was still depressed, declining noticeably during the second quarter compared to the first.

Another key insight is that the brokers who were surveyed appear to have had inflated expectations of industrial property performance since the survey was first started in early 2019. However, when asking respondents about activity direction in the past 6 months, respondents reported an increase in activity in only 1 of the 6 quarters surveyed. What was expected, therefore, appeared not to match up with what ultimately occurred in the industrial property sector.

A key factor driving brokers' near term activity expectations - besides Covid-19 - was the view that property demand could be impacted by companies revising their office space requirements. In essence, the increasing trend to working from home, especially now that companies are slowly returning to their "new normal" could have a severely negative impact on the future performance of the office property market.

<a href="https://data.blackpepperonline.co.za/wp-content/uploads/2020/07/FNB-Property-Broker-Survey-Q2-1.pdf" target="_blank" rel="noopener noreferrer">You can read the full FNB property sector report for Q2 here</a>.

FNB Commercial Property Broker Survey - Q2 2020

PwC recently released an analysis of what the likely impact of the novel coronavirus (Covid-19) pandamic will be on South Africa's economy. The report looks at various scenarios and assumptions when examining impacts of the pandemic on supply chains, the labour force and various sectors within South Africa's economy. It also looks at policy responses to date, and potential ways of flattening the recession curve and healing the economic "scar tissue". Some of the key points are as follows:

While containment policies (such as the current national lockdown South Africa is in) flatten the medical curve, they steepen the recession/depression curve at the same time.

Three possible outlines for South Africa's economy after the pandemic is contained include:

1) A shock impact on the economy as a whole, followed by swift and complete recovery.
2) A sustained recession where performance and overall growth is affected for at least two full years.
3) A drastic impact on economic performance and a prolonged recession, with a return to previous levels of total output not foreseeable.

The Covid-19 virus introduces a wall between demand and supply. In other words, a contraction in supply leads to a contraction in demand, which leads to a large destruction of the economic surplus.

The report also outlines some key factors that will drive the ability of the economy to recover, including:
<ul>
 	<li>The length of the lockdown</li>
 	<li>The choice of policy interventions</li>
 	<li>The speed of recovery of demand (both local and global)</li>
 	<li>The reaction in supply to the recovery in demand</li>
</ul>
Overall, the report concludes that the ability of the South African economy to withstand this onslaught is worrying, given the already depressed state it started from in January of 2020.

For more detail, <a href="https://data.blackpepperonline.co.za/wp-content/uploads/2020/04/PWC-Report.pdf.pdf.pdf" target="_blank" rel="noopener noreferrer">read the full report from PwC here</a>.

Economic consequences of Covid-19 for South Africa

In our <a href="https://www.blackpepperonline.co.za/posts/property-insights/covid-19-an-opportunity-to-reflect/25241" target="_blank" rel="noopener noreferrer">last blog post on the impact that the Covid-19 pandemic is likely to have on businesses</a>, one of the outcomes is that businesses may realise they can operate in a leaner way, with fewer permanent staff in their office. If this is the case with your business, you may be able to downsize to a smaller commercial space and pay less rent, thereby cutting your monthly operational costs in what is already a very stressed economy.

With this in mind, here are 5 things to consider about downsizing your office space:

1. Look at your space planning needs 

Take a hard look at your current head count versus what you think it may be in 6 months' time, a year's time and in three years time - taking into account both growth and decline scenarios. By doing this, you'll have an idea of how much space you'll need going forward, which can inform the downsizing decision you make.

2. What will happen to your existing lease?

If you've signed a commercial lease for several years, you may still be locked into an agreement for your existing office which can make it difficult to move premises in order to downsize. If this is the case, see whether you're legally able to sublet part of your office to another business. If you can, this will allow you to operate in your existing space while collecting rent from the areas you're not using.

3. How will a sublease work?

If you're able to sublet part of your premises, first work out how much space you're willing to give up. How will the logistics work - for example, will you be able to offer joint reception services to the company who is subletting, and have them share costs? Also be mindful of the type of business you sublet to, and make sure they're compatible with yours. If you're an ad agency used to open plan spaces and highly collaborative meetings, make sure that your new tenants fit in with this way of working.

4. Upgrade your furniture

A simple yet effective remedy to operating in a smaller space is to invest in modern office furniture that's much more efficient in terms of fitting people into small spaces. By comparison, older desk set ups take up far more space and only allow one person to sit at them, whereas modern furniture configurations could let you fit two or even three people in the same space previously used by one person.

5. Look at your parking bays

We tend to concentrate on the office space we're occupying, but another potential money saver is to reduce the number of parking bays you require. Perhaps some employees can share a bay if they're coming in on different days, or you could assign two or three floating bays to a group of employees who are able to mostly work from home.

Downsizing your office space is a good way of operating more efficiently by reducing your fixed monthly costs. But before you make the move, work out how much space you will need in the years ahead, and be sure that the new arrangement will help, not hinder, the future growth of your business.

Downsizing office space

With South Africa on full lockdown as a result of the Covid-19 pandemic, the national plan is to try and contain the spread of the virus as much as possible. Aside from essential services like doctors and food production services staying open, all other businesses need to operate remotely if possible. While this is undoubtedly affecting productivity and a general sense of business confidence, all we can do for now is play our part in "flattening the curve" so that the spread is contained as quickly as possible, and businesses can get back to normal.

With this unexpected slowdown - or pause - in normal business operations, why not see this as an opportunity to reflect on how your business operates, and what your changing office needs may be? When the lockdown ends, you may find that you have new insights into how your employees work, and what your office space needs to provide going forward. Here are five questions to ask yourself:

1. Can you downscale?

You may find that through these forced “work from home” measures, certain employees are more flexible than you previously thought. In fact, you may find that their productivity increases: with less commuting time and the ability to focus in the comfort of their own home, the quality of their output may be better. With this in mind, and with the improvements in distance conferencing tools like Zoom and Google Hangout, you may now realise that you can downscale your office, since you need less space for fewer employees to come into the office on a regular basis.

2. Could you do with “non-permanent” desk space?

Is there an opportunity going forward for rotating who comes into the office and who stays at home - which again means you'd need less office space overall? Perhaps you could implement a policy where certain employees only come into the office for certain days of the week, with others coming in on alternative days. With this structure, you could institute transient desk space where two employees share the same desk over different days.

3. Is there room to permanently improve the hygiene standards you have in your office?

Yes, right now everyone is feverishly hand sanitising and hand washing – but why not keep this going once the threat of the virus has passed? After all, a healthy workforce is a productive one, and the fewer sick employees you have on your hands, the better it is for your bottom line. One example could be installing permanent hand sanitisers in your office entrance or in common areas. You could also implement a more stringent policy where if anyone feels even slightly sick, they are to stay home rather than coming to work and passing germs on to the colleagues around them.

4. How could you diversify your business?

Along with entire economies being affected, certain sectors are also being incredibly hard hit by this pandemic, such as the restaurant and tourism industry. Many innovative restaurants are implementing things like at-home delivery or “kerb pickup” to avoid close contact, while still keeping their doors open. These are examples of diversifying out of necessity, and perhaps there’s room for your business to do the same. And if you were to offer different services, would your office requirements differ? For example, if you decided to expand your design studio, or offer training courses, would you require different kinds of spaces, or could you change the internal layout of your office to meet these new requirements?

5. Could you cut costs by consolidating or moving branches?

In this time of reflection, many businesses are looking at ways to downscale in the future to make themselves leaner and better able to withstand any further storms in future. This could mean consolidating several branches into fewer ones in order to lower overheads and boost profitability.

While we don't know what the future holds, the Covid-19 lockdown is a time of reflection both personally and professionally. While it can be stressful achieving the same productivity levels as you did before, you may find that once you've made a few adaptations, you're able to operate in a smarter, leaner way.

Covid-19: An opportunity to reflect

Within the last month, President Cyril Ramaphosa has signed various Bills into law, two of which will affect the property industry at large. Specifically, these bills cover the ability for deeds to be processed electronically, and improves the ease of business in the real estate industry. Here’s more detail on each of them.

Electronic Deeds Registration System Act

The <a href="https://www.gov.za/documents/electronic-deeds-registration-systems-act-19-2019-3-oct-2019-0000" target="_blank" rel="noopener noreferrer">Electronic Deeds Registration System Act</a> will help facilitate the development of an Electronic Deeds Registration System, known as e-DRS. The eDRS system will allow for deeds and documents to be electronically processed, prepared and lodged by conveyancers and the Deeds Registrar. In this way, the system will help reduce the time needed to process deeds, and to provide registered deeds and documents to the public.

Other benefits will include:
<ul>
 	<li>It will allow large volumes of deeds to be registered more effectively</li>
 	<li>It will improve processing times for customers to receive registered deeds and documents</li>
 	<li>It will allow countrywide access to deeds registration services, meaning people outside of the large cities can access these services</li>
 	<li>It will improve the transparency and accuracy of deeds examinations and registration</li>
 	<li>It will improve the availability of information to the public regarding deeds matters</li>
 	<li>It will offer enhanced security of title deeds, and the acquisition and disposal of fixed assets</li>
</ul>
Given huge advances in things like electronic communications, access to internet and e-commerce, it makes sense to implement a system that will take advantage of the inherent benefits of these advances.

Property Practitioners Act

The property market in the country should also benefit from the new <a href="https://www.gov.za/documents/property-practitioners-act-22-2019-3-oct-2019-0000" target="_blank" rel="noopener noreferrer">Property Practitioners Act of 2019</a> which replaces the 43-year-old Estate Agency Affairs Act of 1976 (Act 112 of 1976). Overall, the bill aims speed up the transformation of the property market – specifically including regulating the buying, selling and renting of land and buildings. <a href="https://www.blackpepperonline.co.za/posts/property-insights/property-practitioners-bill-signed-into-law-now-what/25224" target="_blank" rel="noopener noreferrer">Read more about our take on the act here</a>.

Two new bills to impact the property industry

In early October this year, South Africa’s Property Practitioners Bill was signed into law by South African President Cyril Ramaphosa. This law impacts the property industry – but how does it do so, and what does this it for professional practitioners in the industry?

What does the bill do?

The recently approved Bill – which has been heavily debated and anticipated – replaces the Estate Agency Affairs Act of 1976. Presidential spokesperson Khusela Diko says that the new Bill is designed to help speed up the transformation of the property market. “The Bill is aimed at improving the functioning of the property market, which includes regulating the buying, selling and renting of land and buildings,” said Diko.

Among other things, changes that the Bill will bring include replacing the Estate Agency Affairs Board with the new Property Practitioners Regulatory Authority. It’s also intended to put into place better monitoring mechanisms, such as requiring inspectors to obtain warrants to enter premises. And, according to South African Housing and Infrastructure Fund (SAHIF) chief executive Rali Mampeule, the Bill aims to ensure more seamless processes and professional standards in the real estate industry.

What are the concerns about it?

Several industry players, including Real Estate Business Owners of South Africa (Rebosa), have raised concerns about the Bill. One of these is that it does not address specifics about how transformation will be achieved. “Real transformation challenges have not been addressed and the Bill creates as many challenges as it was supposed to address,” says Jan le Roux, chief executive of Rebosa. “Unfortunately, contrary to the department’s belief, the acknowledged problems and inconsistencies in the Bill cannot be addressed by regulations alone.”

Jeanne-Maré Oosthuizen, General Manager for the Rawson Property Group, says that the application and implementation of parts of the new legislation will be impractical, and near impossible in some cases. “There could also be a very real constitutional challenge, if the regulations do not clarify the interpretation of some parts of the Act,” she says.

Simon Black, founder of Black Pepper Properties, says any initiatives to increase compliance and improve overall industry standards would be welcomed. “Hopefully the proposed ‘Board of Authority’ will quickly get to grips with industry challenges, and ultimately make it easier to successfully operate within the various South African real estate sectors,” he says.

So, what’s next?

Nothing concrete can happen until the Bill is enacted after formal declaration by the Government Gazette. Before this can be done, new regulations still need to be prepared, which have not yet been done. Currently, there are no draft regulations published for the Act, and so for now, it’s not likely that the law will come into effect during 2019. This time lapse should, hopefully, provide enough time to resolve major industry concerns about it.

Property Practitioners Bill signed into law – now what?

In 2019, any commercial real estate agency needs a strong web presence in order to operate competitively. Especially in South Africa, continued financial pressures and a struggling economy mean that things are more competitive than ever, and commercial brokers need to fight harder than ever for the few leads that are available.

With this in mind, we took the decision several years ago to revamp our website so that it became a highly streamlined, efficient sales machine – one that was capable not only of advertising stock to potential customers, but also one that would serve as an effective stock aggregator for landlords and tenants. This is a complicated process, because commercial real estate requires large volumes of data to flow between the landlords, their content management systems and client-facing websites.

The average go-to web development language for most web developers is PHP: it’s easy to use, has lots of well-documented examples, and is the language that powers WordPress, which makes it the comfortable choice for most web developers. However, PHP also has its limitations when it comes to data processing speed and flexibility – two crucial factors for the commercial property sector.

With this in mind, at Black Pepper we chose to differentiate ourselves with the help of <a href="https://www.d9cre.com/" target="_blank" rel="noopener noreferrer">D9CRE</a>, a Joburg-based web development company that provides websites and APIs to interface with the Gmaven system. Gmaven is a revolutionary cloud-based stock management system designed specifically for the commercial property sector. Using this tool, D9CRE builds progressive web applications that are designed to handle the complexities and large volumes of data by using the best web technology possible.

What differentiates D9CRE from other competitors is that they have built their system from the ground up – from their own API that handles the data feed between Gmaven and the database, to the beautiful front ends (i.e. websites) that clients use to interact with the data. Best of all, their system is specifically built for commercial real estate, which makes it the opposite to an off-the-shelf product that has been simply adapted to work for the commercial real estate industry.

“Our clients benefit from using the best commercial real estate software, and whilst doing so, they are able to seamlessly populate and update their client facing websites without having to ever manually update website data,” says D9CRE owner Dave Lynch. “In this way, all the complexity that are usually stumbling blocks within the industry are removed.”

According to Lynch, their clients within the commercial property sector enjoy several major benefits, including:

• No version control issues, since the stock is updated in real time (via Gmaven)
• One source of information: there is no longer conflict between the information being provided by the landlord, and the information being advertised by a commercial broker on their site
• Greater site speed, through cloud-based databases and GraphQL
• Granular search functionality that allows the user to search on a huge range of criteria including (but not limited to) suburb, street, developer, property size - all down to unit level
• A progressive front-end website that fits perfectly into mobile-enabled, tech forward 2019
• Search engine optimisation (SEO) that is “baked in” to the design and structure of the site
• A completely customisable design that fits in with the client’s particular brand look and feel

While implementing our new system required us to invest some significant capital upfront, the ease with which we are now able to run our business so that we can spend our time converting leads has more than made up for this. In short, having a website that plugs directly into the market has created a fully integrated interface for both our clients and suppliers. It’s allowed us to create an entirely new way of doing business – one that is highly efficient and adaptable, which is hugely important for us given our increasingly competitive market environment.

A new generation web presence

As a commercial property brokerage, over time we were becoming increasingly aware of how important it was to find a way of automating how our business handled and managed landlord information. We realised that if we didn’t find an automated solution, we’d quickly lose our competitive edge in the cutthroat world of office and industrial property.

With this as our motivation, we started investigating software options we could use in order to do this. Luckily, business technology software is moving forward in leaps and bounds – and there are many exciting things happening in the space. As far as Black Pepper Properties was concerned, we needed a property stock system that would:
<ul>
 	<li>Be worth the time and effort integrating with our existing work processes</li>
 	<li>Meet our specific needs as a property brokerage in South Africa</li>
 	<li>Provide sufficient support and training</li>
 	<li>Provide a roadmap to eventual success using the new system</li>
</ul>
After numerous meetings and some investigation of our options, we became aware of the Gmaven Broker Platform, spearheaded by tech entrepreneur Will Harris. We became convinced that it was an excellent fit for our business – both technically and practically. Although Gmaven was a new entrant to the marketplace, we believed in the team and what they were doing, and knew that the system was technically sound and would become increasingly valuable once Gmaven attracted a wider user base.

In fact, the entire future success of Gmaven depended on how many landlords would adopt the system and send information to it: their success would be our success.

Effectively, Black Pepper was a test-bed for Gmaven, and they relied on us to give them end-user insights as to how the system should work. Using our specialist property knowledge, we were able to guide their team on adding functionality that would benefit us as property brokers – and so the market in general.

Then came the question of deciding between leasing or owning the system. If we bought outright ownership of Gmaven, we would have had an asset of several million Rands. But, with the software’s given lifespan of around five years, we would have to reinvest once this period was up. With this in mind, we decided to lease the system so that we could always have access to a cutting-edge technology that is continuously upgraded.

After we’d selected Gmaven as our preferred software provider, Black Pepper Properties as specialist advisors had several key roles:
<ul>
 	<li>To oversee the safe and efficient transfer of our database across to the new system.</li>
 	<li>To oversee the website redevelopment with an API link/switch to Gmaven, and the stock clean-up/integration of fund/private stock vacancy schedules.</li>
 	<li>To ensure the marketing material generated by the system was presented accurately, and in a format that would create a good impression with clients.</li>
</ul>
By aggregating shared information enhanced by our own layer of intellectual property, Black Pepper Properties is now able to offer a far improved offering than before. Sharing information ultimately drives economic growth due to the ability for contributors to share information with a potential financial benefit from doing so.

Of course, the transition to Gmaven was not without its problems and challenges. These included issues such as getting over the psychological adjustment of using a new system every day, and the opportunity cost of adoption versus not proceeding in implementing the system.

However, by committing to the new arrangement, learning the system, and realising the advantage of the long-term productivity gains we’d enjoy, it was more than worthwhile to take on the challenges.

As a result of the Gmaven implementation, Black Pepper now enjoys the following:

Access to current market information, which can be distributed rapidly to clients. For example, today we’re able to compile and send a property report to a prospective client in under 5 minutes, whereas before this task would have taken hours.

Access to a vacancy information feed directly into our system from the property owner or manager’s vacancy schedules. This happens within a maximum of 3 days from vacancy schedules being released, at a 98% level of data accuracy. It allows us to focus on transacting and winning new clients, with a near-complete menu of high-quality information on available space options.

The ability to easily generate and hold comprehensive information on all relevant properties within a geographical region which is now wider than we could previously cover.

Above all, adopting Gmaven has allowed us more time to reach out to property owners and tenants, as well as to manage existing client relationships. Importantly, efficiencies arising from Gmaven has allowed us to run our business more efficiently, therefore freeing us up to take the business to the next level.

Automating a property brokerage with Gmaven

When it comes to commercial property, most lease agreements have several common clauses that set out the expectations and rights of both the landlord and the tenant involved. These can go a long way to keeping the tenant/landlord relationship harmonious, and in preventing legal action and unnecessary costs on both sides. The most common lease clauses to be found in a commercial property agreement usually include the following:

1. Term of the lease

The length of a commercial lease varies, but typically in a commercial contract the lease lasts for around 3-5 years. Almost all leases will state the beneficial occupation period (one or two months), a formal lease commencement date and the expiry date of the lease period. Often a notice period of 6-12 months prior to lease expiry is included in the lease agreement, which gives both parties enough time to make provision for a new replacement lease, or to exit the existing one.

2. Use of the property by the tenant

In any commercial lease, there may be restrictions as to how a property can be used – for example, the landlord may specify that it can only be used as a commercial space rather than a residential one. Tenants should pay specific attention to the municipal zoning permissions in place which could impact on their operations within a building or property. Any contravention of the permitted by-laws could lead to fines or even a shutdown by law enforcement. Above all, ensure specific retail, office or industrial zonings applicable to your business operations are in place before committing to a lease.

3. Security deposit

Most leases include a clause about a security deposit in the form of cash or a bank guarantee that is held in favour of the landlord should the tenant breach the lease in terms of non-payment or damage to the property. In South Africa, there are strict rules for how deposits should be handled, where they are kept, and whether interest is payable to the tenant on the deposit amount. There are also often deadlines in the lease for when the deposit should be refunded to the tenant – usually this is 2-3 months after the lease has ended, when the tenant has moved out and landlord has had a reasonable period to assess the property for damage.

4. Rights to do with the possession of the property

This part of the lease will outline what the tenant’s rights are regarding the possession of the premises. Broadly speaking, the landlord is agreeing to lend the property to the tenant for their use, and possession will not be interfered with during the term of the lease. However this doesn’t mean that the landlord cannot access the premises – usually they would need to do this for repairs and maintenance, for example. The terms of access should all be clearly outlined in the lease.

5. Improvements to the leased property

In general, the tenant is not allowed to make improvements to the property to accommodate their business unless they are given express permission by the landlord, or unless there is a new agreement. If improvements are made, these will typically become the property of the landlord once the lease ends.

6. Property maintenance

How the property is maintained and who pays for it varies greatly between leases, though in most commercial leases the landlord is responsible for most maintenance. In some cases, specifically where triple-net lease is agreed, all maintenance and general upkeep of a facility will become the responsibility of the tenant. For example, a warehouse tenant could be responsible for the maintaining all air-conditioning, cranes, roller doors, dock-levellers and electrical installations, whilst the major structural maintenance and insurance would be covered by the landlord.

7. Subleasing the property

Most landlords will allow sub-leasing subject to their concluding a suitable vetting process. If the landlord permits a sublease to a third-party, he may elect to keep the original tenant liable for some or all of the remaining rental obligations thereby covering themselves for any potential risks associated with any lease reapportionment.

8. Renewal period

Many commercial leases will give the tenant the option to renew the lease before the lease period has expired. This will typically be a window within the existing lease – such as the 3-6 months prior to lease expiry – during which the tenant and landlord can negotiate a new agreement.

Overall, it’s important that both parties negotiate with a good grasp of market conditions so that equitable terms are reached for both parties.

Common Aspects of Corporate Lease Structuring

Moving to new office premises? In most cases – more than 90% of the time –changes will need to be made to your new office space to make it suitable for you as a tenant. These changes could be as minor as installing new lighting, air conditioning and a new coat of paint, to major exercises like a new interior design scheme that includes new dry walling and other major layout changes. If you’re moving to a new development, especially, workspaces will typically need to be fitted out from scratch in order to accommodate you.

So, who pays for it?

Usually, the base construction of the office premises is completed by the developer, but for the fit out, you as the tenant are responsible for this cost. In many cases, the landlord will make a contribution towards this cost – typically the equivalent of a month’s rental per year of the lease you have signed with them. Once you’ve agreed on this, a specialist interior firm will pitch to you to do your office fit out for you.

How do you choose the right office interior company?

This will depend on a variety of factors – most importantly, your budget constraints. How much money will you have to spend over and above your other moving costs and monthly rental costs? Then, you’ll need to narrow down the firm that is right for you depending on how they plan to translate your CI, whether they’ve solved for your specific workspace needs – and overall, whether you like their general interior style.

How much should you spend?

Often, the office interior firm will quote you three prices: the “Rolls Royce” option of everything including layout changes, new furniture and a completely new look and feel.

The second cost will be a mid-range one, for example where you reuse your existing furniture from your existing space.

The third option is the “bare essentials” – including things like painting, fixing flooring, installing air conditioning and laying down carpeting. Once you have these three costs, you can then prioritise over time according to your budget over the next 6-18 months.

So, with all of this in mind, if you’re a tenant looking to find new premises, what should you think about when it comes to your new office fit out?
<ol>
 	<li>What is your budget? How much money you have available to spend on your interiors will determine what kind of firm you can use and what kinds of changes you can make.</li>
 	<li>What does the floorplate look like? If you’re comparing two office premises, it’s crucial to look at the “efficiency of floorplate” of both – that is, how well the existing floorplate meets your needs and requirements, or how much will be changed. So, for example, if the existing office is better suited to an open plan space which you’d like, you’ll have to pay for less space, and so your costs will be more efficient.</li>
 	<li>What kinds of spaces will you need? You’ll need to communicate exactly what kinds of individual and collaborative spaces you’ll need to your fitout company – for example, things like reception areas, meeting rooms, boardrooms, conference facilities, how much open plan space versus private offices you want, and whether you want things like privacy booths. Bear in mind that South Africans also enjoy outside spaces as relaxation/”break” areas.</li>
</ol>
If you’re considering moving offices, the office fitout that you choose has a huge effect on your final costs, as well as the satisfaction that you and your staff will experience in your new premises.

For this reason, it’s important to know from the outset what kind of fitout you need, and to choose your interior design firm carefully so that they’ll be able to meet your needs – on time, and within your budget.

What’s involved in an office fit out?

In the South African office and industrial sectors, a property broker represents two sides of a deal: he has his client, the tenant, but he also manages the expectations of the landlord. After all, it’s in his interest for the landlord to be happy in order for the deal to go through.

But if you’re a prospective tenant looking for specialised help, a tenant representation broker may be what you’re looking for. In this article, we look at what they are, how they can help you as a tenant, and what you should bear in mind.

What is a tenant representative?

A tenant representative focuses exclusively on representing your interests as a tenant. Whether you’re a small business or a multinational looking for a new head office, a tenant representative broker will help you through all aspects of securing office premises: from helping you through the leasing process, finding suitable space, to fitting out the premises for occupancy.

Why do you need one?

Negotiating an office lease can be a complicated and expensive process. If you don’t know the ins and outs of negotiating leases or how to ask for what you want from landlords, you may end up paying well over market rates for your premises – or you may end up in a multi-year lease in a property that is completely unsuited to your needs. This is where a tenant representative can help, as they’re there to advise you on every step of the process so that you get the best deal possible.

What specific tasks do they help with?

Depending on the nature of the deal at hand, a tenant representative could assist you in the following ways:
<ul>
 	<li>Helping you to decide whether to stay in in your current premises and change them to suit your needs by renegotiating a deal with your current landlord, or move to new premises altogether
Choosing the best location depending on what you specifically need as a business – e.g. proximity to major highways or public transport hubs, a certain size of premises, or needing to be near your bigger clients</li>
 	<li>Negotiating the best deal possible with the landlord for new premises</li>
 	<li>Helping you to temporarily sublet space if you buy premises with the view to expanding in future</li>
 	<li>Advising you on all aspects related to leasing commercial premises</li>
 	<li>Helping you with a new office space fit out by connecting you with specialist partners in this area</li>
</ul>
What should you look out for?

If you’re looking for a party that looks out specifically for your interests, a tenant representative is crucial to have during your commercial property negotiation. If you’re trying to find one, what should you look out for? First and foremost, your tenant representative should have a good grasp of the market, strong ethics and proven track record.

Tenant Representation

With the advancement of online content that's more reliable and accurate than ever, commercial property tenants are becoming more educated, switched-on and discerning as consumers of corporate real estate services than ever before.
Useful online tools.
In an age of TripAdvisor, Kayak, Zomato and Tinder, consumers expect access to better-quality decision self-serving information, early. Commercial property’s response is the widespread availability of useful online tools that allow potential tenants to conduct their own market research, before formally engaging with a property broker. For example, many property websites now offer comparable (like for like) property information in the same area, with detailed stats to go along with it. This allows potential customers to first get comfortable with the various property transaction mechanics, while at the same time avoiding the pressure often applied by agents during initial engagements.
“Almost live” data
Another factor in this tech disruption is the increasing availability of “near real time” data that is now available to customers directly from landlords. We, for example, receive a feed of aggregated industry data from property software platform Gmaven. This means that the property information on the website from the major listed/private sector property funds is highly relevant and up to date.
So where do property brokers fit in?
With all this data now available directly to commercial and industrial property customers though, how do property brokers fit into this new landscape – and is there even place for them?
In our opinion, the disintermediation of commercial and industrial property agencies won’t happen due to the complexities involved with commercial property transactions. In these transactions, tenants and buyers both benefit, because they both get near-perfect market information.
In fact, the technology can actually help property brokers – not hinder them. As agents, we used to be delayed in servicing client enquiries due to collating and analysing data.
One potential adverse reaction to this new tech adoption is the increasing trend among some property agencies to publish ‘window-dressed’ website listings that don’t actually exist or where their information cannot be trusted. These marketing tactics create the impression of ‘below market’ listings or the provision of fake stock to lure tenants and later claim a property has “just been let or sold – but can we offer you an alternative?”. The dangers of agencies doing this is that they lose the trust of the customer for future transactions – if they manage to retain them that long at all.
It benefits landlords too
The adoption of more sophisticated tech platforms by property brokers for their customers is also a good thing for landlords, as it allows property owners the ability to control the quality of their information available to potential customers. This “one version of truth” solution significantly reduces the pen-and-paper, phone tag churn required to confirm financial information between all parties.
Up until now, property fund listings online are typically littered with poor, inaccurate or limited information. This unmeasured, almost slap-dash approach doesn’t allow a potential tenant to make a firm decision, and this doesn’t reflect well on the landlord at all. Streamlining this with tech improvements will go a long way to ensuring control of outgoing vacancy information to market both in terms of accuracy and quality – which ultimately means more deals for the landlords.
Property funds are also increasingly adopting these technologies to increase the chances of direct client engagements, while sidelining agencies and thereby avoiding having to pay sizeable commissions.
In a South African context, the benefits of a tenant dealing directly with landlords remain fairly limited. In most cases, a tenant doesn’t have access to data like market trends and likely landlord concessions. They also lack experience in the industry and so have to rely on often-conflicted advice to navigate through complex decisions towards a satisfactory financial outcome. This is now changing: tech advancements do allow significantly more research to happen prior to formal engagement with a broker.
An industry switch
By employing an industry switch as seen with the banks and the medical industry, property industry data can flow in several directions, from property funds into property agencies and then in turn from agency websites to customers. This requires the aggregation of information to comparable formats, where data is standardised and displayed in decision-relevant ways. Commercial terms and information also need to be presented in a way that can inform, educate and empower.
Once this is perfected, property brokers can concentrate on increasing deal flows, interpreting the data, advising clients and providing a more intimate and consistent property needs-driven pre-engagement with tenants. In this way, agencies are evolving from mere “dot joiners” to providing valuable consulting services in commercial property transactions – which ultimately benefits both tenants and landlords alike.

BizTrends 2019: How tech is disrupting - and benefitting - the corporate real estate industry

Relocating commercial premises is hard on a business. Moving location, no matter how near or far, can disrupt your operations, put strain on customer relations, and be unsettling to your staff.

In order to make your commercial move as seamless as possible, here are three&nbsp;important steps you can take:


<ol>
 	<li>Develop a transition strategy. From the moment you know you're going to move, identify the business issues or challenges that will go along with it, as well as ways to deal with each one.</li>
 	<li>Prioritise. Plan on which issues you'll deal with first, and identify any relocation constraints you'll be faced with.</li>
 	<li>Communicate. Throughout this process,&nbsp;ensure that your staff remain informed of all moving plans and schedules as far ahead as possible.</li>
</ol>
Relocating commercial spaces is never easy. Through our experiences we know the ins and outs of corporate relocations, so we can help you along the way. This, along with our various space planning, relocation and design partners will ensure that you're well looked after.

Considering an office or warehouse move? Call&nbsp;Simon on 083 261 2861, or email him at&nbsp;simon@blackpepperonline.co.za.

Corporate Real Estate Relocations

It's rare that commercial property occupants concern themselves with property operational costs after they've signed a lease or finalised the purchase of their premises. Instead, occupants usually focus on increasing revenues and reducing cost lines within the organisation. Overlooking occupancy costs can have a significant impact on your business, which can ultimately cause problematic inefficiencies within your work environment.

Generally speaking, property or facilities management is an administrative function performed by line managers or outsourced to sometimes-ineffective property managers. Controlling occupancy costs for a single location or portfolio of properties starts with establishing the cost drivers and managing the intrinsic interplay between them. Location drives costs for staff and rentals, and in the current economic cycle more opportunities exist with increasing vacancy rates.

Retaining or attracting quality tenants is vitally important to a landlord. We're witnessing a trend where deals are being concluded most often by landlords who offer&nbsp;well-structured, attractive terms and effectively negotiated concession packages. Also bear in mind that the efficiency of your working spaces is a major contributor to occupancy costs. Opportunities exist for commercial property users to achieve cost savings that enhance their bottom line performance.

Speak to a qualified property practitioner in order to successfully achieve efficiency and performance objectives. The impact of rising occupancy costs on revenues and performance can be significant and by reducing these costs a business can increase profitability. After all, every Rand saved ultimately affects a business’s bottom line. Proactively managing occupancy costs can be challenging where decisions are fragmented by organisational structures.

For advice or market related&nbsp;occupancy costs information contact a qualified property practitioner for assistance.

Commercial Property Occupancy Costs

There has been considerable interest lately regarding government leases and their benefits and challenges. In reality, government leases can be both lucrative and problematic for landlords.

To start with, landlords&nbsp;are attracting higher rental rates from government leases. However,&nbsp;this practice came under intense fire in the recent budget speech given by&nbsp;Finance Minister Pravin Gordhan, who accused landlords of taking advantage of government by&nbsp;demanding inflated rental rates.



The reality is that landlords are able to command these higher rental rates as a result of the government's own inefficiencies and shortsightedness. It's&nbsp;commonly accepted that the South African government is known for reckless spending, so it's no surprise that landlords are pursuing these leases with vigour. In addition, government will only engage with BEE-certified businesses, which means that only a handful of Real Estate Investment Trusts (REITs) are acceptable transacting partners. Because of this, the REITS that have managed to achieve the required BEE certification know that government choices&nbsp;for facilities are few and far between, so they know they can demand a premium due to this limited availability.

Although government tenants seem like the most lucrative option for&nbsp;landlords, they do come with certain risks. Government&nbsp;tenants can put severe strain on cash flow as it's not&nbsp;uncommon for monthly rent to be paid late. It's also&nbsp;generally accepted that government&nbsp;tenants don't look after the buildings they occupy. So, in the event a lease is not renewed, the landlord is likely to have a run-down building requiring large capital investment. This capital investment could easily erode away any profits accrued over the duration of the lease in question.

Only time will tell whether landlords will emerge as the winner when transacting with government. For the time being though, government&nbsp;tenants are an attractive prospect for any landlord.

Government Leases: A Good Idea?

Whether to buy or lease commercial property is a question that continues to come up when we talk to our clients about their objectives and strategies as a business. Typically this debate arises when property rentals have reached new heights, or when property values have adjusted downwards and purchasing a facility or office becomes a realistic consideration. Increasingly, SMEs are grappling with the buy vs. let scenario, where purchasing a business address often sounds like a good idea but never actually comes to fruition.



More than just a financial decision

For large commercial entities with multiple locations, they'll either lease or own their commercial property depending on the strategic and operational implications involved. Most businesses look at property simply as a way to produce products or provide services. There's more to it than that though. Ultimately, the decision should not be based solely on the financial considerations but should also include a variety of financial and operational factors beyond just the property asset and the projected costs of occupation.

The attraction of long term leases

For example, today’s market creates the opportunity to take advantage and either purchase or lock into long-term leases at favourable terms. Rentals will change as the economy recovers, concession packages will fall away and pricing will eventually escalate. Long-term control of a facility can be achieved with 5-12 years lease commitments, and flexibility can be provided in the form of expansion, contraction and renewal options.

The long term advantage of buying

Buying commercial property can certainly be a good long-term occupancy decision with significant financial reward and operational advantages. Assuming the economics of a transaction are attractive, one should consider how much will your business or space requirements will change over time. Would owning a building create significant challenges in managing those changes?

Buying vs. leasing commercial property is not only a financial decision, but is equally a risk and operational decision.

Over the past six years we have helped commercial businesses lease, purchase, develop and dispose of office and industrial buildings.&nbsp;If you're looking for help in making the right operational decision regarding your commercial property, we're here to help. Call Simon on 083 261 2861 or email simon@blackpepperonline.co.za to start the conversation today.

Buy or lease commercial property? The debate continues...

Business owners often grapple with ideas on how best to optimise on their corporate identity and physical workspaces so they can attract the right staff and skillsets required to ensure their business is a success. The reality is, your workspace is just one component in the mix. As a business owner, attracting the right staff involves asking yourself four key questions:



1. Where is my work premises located?

Depending on where your office is will affect how attractive you are to potential staff. This includes factors like the ease of commuting to and from work, and how accessible your office are to amenities like shops, banks and restaurants. Having things like satellite workspaces outside the office or allowing employees to work from home (see point number 2) can reduce employee commutes or reduce them altogether.

2. How much are you willing to embrace technology?

The emergence of work related technologically has changed the way people work by increasing their ability to work flexibly. Work processes can now be separated from physical spaces with things like cloud-based services, which can reduce costs associated with your business. From a workspace point of view, technological advances mean you don't need your workspace to be as big, thanks to having satellite offices or staff who work from home.

3. How will you enable knowledge sharing?

Creating spaces for informal discussions and promoting knowledge sharing and collaboration among staff and co-workers is important. The functionality of the workspace must accommodate public and private spaces. Creating an environment that encourages interaction enables teams to adapt to change and even respond better to stressful deadlines or challenges. Privacy must not be overlooked either. It's a key component of successful workplaces and is more conducive to completing tasks that require concentration and minimal distraction.

4. What are your staff salaries and incentive structures?

Possibly most importantly, the better your packages are in terms of &nbsp;salaries and incentives, the more of an attractive option you'll be for potential employees.

By offering an attractive location, a good salary, access to cutting edge tech tools and opportunities to collaborate with fellow co-workers, you'll be able to increase staff retention and ultimately enhance employee satisfaction levels.&nbsp;

Commercial workspaces – how important are they in attracting staff?

In South Africa, the unexpected is part of life. When it comes to commercial property, this is no exception. Summer thunderstorms, flooding, cable theft, service delivery issues and Eskom’s ongoing load shedding programmes are often the cause of a failing electrical supply. This is on top of the normal risk of natural disasters or building dilapidation, which can result in business operations being completely interrupted for indefinite periods of time.

In South Africa, most standard office leases make provision for the interruption of essential building services. In most cases, the rent and the lease will continue to exist. Should an issue persist for an extended period, you as the tenant may need to seek rent abatement measures should essential services such as electricity, internet connectivity or the water supply be interrupted.



Short term interruptions

Most landlords are willing to include terms into a commercial property lease that give them time to restore temporary interruptions to essential services before starting rent abatement measures.&nbsp;Bear in mind that the onus does not fall onto the landlord to deal with these eventualities - you as the tenant should make sure they're dealt with.&nbsp;

Negotiating an ‘interruption of services’ provision in your commercial lease is subject to many factors, and in our experience the most prevalent one is bank requirements or the availability of insurance.&nbsp;While banks are wary of possible abatement of rent and tenant termination provisions, these are fairly common and are generally acceptable to the banks. In general, overlooking this issue during lease negotiations could prove costly and can even have a material effect on the viability of your business.

Standby measures

Rent abatement alone may not be enough to counter the loss your business may face as a result of the interruption. If you're a tenant with critical operational requirements, you should take preventative measures one step further and negotiate the right to install a standby generator on the commercial property you're leasing. In this way, you can continue critical operations until services are restored. If you're a commercial tenant in the manufacturing industry, it may be a good idea to investigate insurance policies that mitigate operational risk in terms of production failure, loss in market share, and the costs involved in procuring alternative real estate accommodation.

An experienced property practitioner should raise these issues during lease negotiations. &nbsp;Formalising a formal disaster recovery plan is a prudent measure to consider when considering the potential financial and operational risks associated with a commercial property lease.

Need help with working out provisions for service interruptions in your commercial lease? Contact Simon on 083 261 2861 or email simon@blackpepperonline.co.za.

Commercial property leases: dealing with the unexpected

One of the most hotly contested concepts in commercial property is measuring office space for rental purposes. Rentals for the majority of office leases incorporate usable square metres PLUS the tenant’s proportionate share of common areas in their building.



Usable areas

Generally, "usable area" means the space that is occupied exclusively by the tenant. For smaller tenants, usable area is simply the space inside the offices with no exclusions for recess doors or structural columns. For full floor or multi-floor tenants, usable space includes everything inside the walls, including toilets, cleaning rooms, kitchens and even electricity supply vaults.

Common areas

Full-floor or multi-floor tenants also pay a share of the building common areas not on their floor, such as the main building lobby. The common area factor is a number, which refers to shared spaces on a single floor as well as within the entire building. We recommend that as a tenant you clarify this calculation with the landlord to ensure no misunderstandings develop through the lease transaction. Make sure to address this issue in conjunction with an appointed property practitioner before a lease is signed. This is very important, because little or no recourse exists after the lease negotiation is concluded.

Shape of your office space

Reasonable landlords will accept revisions to a lease when the measurement of the premises is verified by either theirs or the tenant's architect, subject to an acceptable measurement standard. When evaluating space options, it's important to note that most buildings have different common area factors and floor plate dimensions. The shape of your office space can have a significant impact on your space plan, which ultimately affects the amount of usable space you need.

What it all means

Two competing spaces with similar rental rates can have significantly different economic outcomes as a result of common area factors and space design efficiencies. Working with a competent property practitioner who understands all the intricacies of leasing office space and has the technical skills to evaluate the options available will insure you are making an informed decision. Basically speaking, if you can stand on it, landlords will want you to pay for it!

Need help with working out the amount of commercial space you should be paying for as a tenant? Contact Simon on 083 261 2861 or email simon@blackpepperonline.co.za.

Why do commercial tenants pay for more space than they need?

Commercial property lease agreements are typically long term arrangements between a tenant and a landlord and range anywhere from 3 to 10 years. Landlords tend to shy away from short leases in favour of long term ones that offer more stable, predictable cash flows for long term profits. Unfortunately, predicting future business cycles is becoming increasingly difficult. This means that for a tenant, anticipating space requirements is a challenging proposition.



During the initial stages of a new tenancy, landlords typically have to inject significant capital in order to finance tenant installation costs, leasing commissions and complete a reasonable vetting process. In order to successfully recoup these occupation costs, they'll always prefer longer term lease structures. For tenants, short term lease structures or mistimed relocations can also prove costly in the long run - particularly when other alternatives may be available.

In order to reduce the risk associated with an unpredictable economic landscape, it's critical for both parties to secure a flexible long term lease structure. For example, securing the right to terminate the lease prematurely at a specific point during the lease term could prove very valuable to you as the tenant. This kind of termination option will require a specific notice period in advance of the termination - typically 6 -12 months.

If you're a larger tenant with a growing business, you certainly need to factor in variable staff requirements. This means you may want to structure an expansion or contraction option for predefined spaces at various points during the lease. Once additional spaces become available, the landlord would be obligated to offer these to you before engaging the market.

A "first right of refusal" means that the landlord is obligated to present any deal to you, the primary tenant, that they are willing to sign with a third party tenant for a predefined space. If there is interest from the existing tenant for the expansion option, that tenant may elect to match the deal and pre-empt the transaction with a third party tenant.

The workplace is rapidly changing, and new ways of incorporating flexibility with office design and alternative work strategies are becoming popular. A volatile global economy means that being able to reduce risk by allowing flexibility is becoming increasingly important.

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