Commercial leasing and occupier advisory in Mumbai

Total occupancy cost, not rent

Two leases at the same rent can differ by a substantial margin in what they actually cost an occupier over a five-year term, once escalation, common-area factor, maintenance charges, parking, fit-out contribution, rent-free period, security deposit and the efficiency of the floor plate are accounted for.

We model total occupancy cost per usable seat or per efficient square foot, which is the number a CFO should be comparing. It frequently reorders a shortlist that looked settled on headline rent.

• Rent, escalation rate and escalation frequency
• Loading factor and the resulting usable efficiency
• CAM charges and what they escalate with
• Rent-free period and fit-out contribution
• Security deposit and its treatment
• Lock-in, notice and exit flexibility
• Parking ratio and cost

Flexibility is worth paying for

The provision occupiers most often regret is not the rent; it is the lock-in. A five-year lock-in signed by a business planning to grow is a bet on the accuracy of a headcount forecast, and headcount forecasts are not accurate.

We treat flexibility — break options, expansion rights, assignment and sub-letting permissions — as a priced term to be negotiated deliberately, rather than a clause to be accepted as standard.

For landlords: covenant beats rent

A landlord's return is the rent actually received over the term, not the rent agreed at signing. A slightly lower rent from a strong covenant on a long term is usually worth more than a headline rent from a tenant who may not be there in year three — and materially more than a void.

We assess tenant covenant strength and advise on the trade-off explicitly, including when the right answer is to accept a lower rent to secure the better tenant.