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CBRE | Page 1
CBRE | Page 1

Long Term Leasing for Office Buildings

Why, Who, How?

7 Dec 2011 Presented by: Nathan Cumberlidge

CBRE | Page 1 Long Term Leasing for Office Buildings Why, Who, How? 7 Dec 2011
WHY? CBRE | Page 2
WHY?
CBRE | Page 2
Office Market Outlook A potential reason to sell? CBRE | Page 3
Office Market Outlook
A potential reason to sell?
CBRE | Page 3

Vietnam is growing fast but expansion can be toxic

Growing economies typically have:

Volatile inflation – 2011 estimated at 19%

• Volatile inflation – 2011 estimated at 19%

Rising construction costs

Highly fluctuating energy costs

A cautious banking system offering limited credit

Increasing regulation on developers and landowners – Decree 95

Rapidly increasing construction quality decreasing the age of building obsolescence

Commoditization of the market – very difficult to differentiate your product

Ever one smells the cash and wants to build as much as they can – as soon as they can

y

CBRE | Page 4

CBRE | Page 4
Key Office Market Facts Since 2007 there has been a rising vacancy in Grade A
Key Office Market Facts
Since 2007 there has
been a rising vacancy
in Grade A & B
properties
A high supply pipeline
will compound this
issue
If supply exceeds
demand : vacancies
will increase! FACT
This will impact ALL
Landlords to different
de rees
g
CBRE | Page 5
CBRE | Page 6 Rents have been on the slide for nearly 3 years A

CBRE | Page 6

Rents have been on the slide for nearly 3 years A declining rental structure represents a declining profit margin on your original Feasibility Study! I BET YOU HAD 5-10% RENTAL GROWTH PER ANNUM? Selling floors at a slight premium offers a hedge against further decreases. Floor purchase is a growth area – but will it last?

prem i um o ff ers a h e d ge against further decreases. Floor purchase

Market Analysis

The Nightmare (likely) Scenario!

1 – You secure a tenant – but on a lower rent and shorter lease with extended rent free

2 – You have to sign a contract in VND – the VND devalues 5-10% each year

3 – At renewal the new shiny building down the road offers a great deal

4 – You have to offer the same or lower to keep the tenant & your rents slide

5 - Your investment value drops with the rents

6 – Your cash flow drops and you can’t afford to stick to your original refurbishment schedule

7 – tenants see the decline in quality and leave in 6-10 years

CBRE | Page 7

CBRE | Page 7

Market Analysis

Panic Not! there is a blue sky scenario

1 – Diversify your asset with some long terms leases

You are guaranteed a service charge from these tenants (variable)

They will agree to a sinking fund / payment for important improvements (new lifts, floor, lighting etc) through negotiation – keep your building current

Offset potentially high vacancy – an empty floor is not a $0 cost – you will have to cover the service charge – get help from the long term tenant

2 – The building will always be a certain % full (no tenants like an empty building)

3 – A large company such as Petro Vietnam, EVN, Bank will always hold prestige in a market maintaining a good rental and attracting other tenants

4 – A key anchor tenant is likely to be a growth company and will expand in your building – they will also periodically take short term 3-5 year space in good times

5 – If the contract is good and they are an owner occupier it will not damage the investment value for your remaining space.

CBRE | Page 8

CBRE | Page 8
Financial pressures CBRE | Page 9
Financial pressures
CBRE | Page 9

Market Analysis

Cost of Finance – Can you start, finish, maintain your project?

Cost of finance is at high % with a loan to value rate of 30%

Banks have been told to decrease their exposure and the credit line is set to dry further

Banks increasingly calling in debts and penalties associated with default very high – high % of default?

ks i ncreas i ng ly calli ng i n deb ts an d pena lti

Selling a floor can still secure a market rate ensuring your original profit margin over construction costs and finance for this section of the property

Decree 95 is a real risk. Leases are fixed at 3 to 5 years. Every devaluation of the VND will loose you money, even with annual rent reviews you will loose for 3 quarters.

Selling early will offset the risk of devaluation for a section of your property

CBRE | Page 10

CBRE | Page 10

Stay in front

Cost of finance can impact on the rental price. If you need to secure loans the interest will either need to be passed on to the tenants in rent or to you in reduced profits. Selling a floor can raise quick upfront payments and depending how the payments are structured assist in the completion of the building. You can therefore raise capital but retain profit margin and remain competitive Also an upfront capital payment can assist you with the cost of running the building post opening.

CBRE | Page 11

Also an upfront capital payment can assist you with the cost of ru nning the building
Also an upfront capital payment can assist you with the cost of ru nning the building
WHO? CBRE | Page 12
WHO?
CBRE | Page 12
Know your purchasers CBRE | Page 13
Know your purchasers
CBRE | Page 13

Who will be interested and why?

p In general we can split a purchaser into two categories – Investor and Owner occupier Key drivers for each:

Different

ro erties will s it different

p

u

rchasers

pu

Investor

 

Owner Occupier

Initial Asking Price Vs Rental

 

Location for staff & Clients

Initial Monthl

Rental

y

 

Qualit

of the propert

y

y

Future rental growth & what rate (%)

 

Internal office specification

Future Occupanc

Rates

y

 

Buildin

Mana ement

Existing & Future tenant mix

 

Asking price & payment structure

Adaptabilit

(split for multi tenants)

 

Business Plan & Expansion Space

y

CBRE | Page 14

CBRE | Page 14

Why they buy?

An investment is made through the income it achieves.

Will the rents rise steadily?

When will they get a return?

CBRE | Page 15

is made through the income it achieves. Will the rents rise steadily? When will they get
is made through the income it achieves. Will the rents rise steadily? When will they get
is made through the income it achieves. Will the rents rise steadily? When will they get
Who you want? YES Owner occupiers Vietnamese / Foreign firms with a long trading history

Who you want?

YES

Owner occupiers

Who you want? YES Owner occupiers Vietnamese / Foreign firms with a long trading history Whole

Vietnamese / Foreign firms with a long trading history

Whole / ½ floor occupiers

Low density occupiers – 1 staff to 8-12 sqm

NO

occupiers Low density occupiers – 1 staff to 8-12 sqm NO Investors looking to sublease Start

Investors looking to sublease

Start up businesses

Small space occupiers 100 -200 sqm

High density occupiers – 1 staff to 5 sqm

CBRE | Page 16

sublease Start up businesses Small space occupiers 100 -200 sqm High density occupiers – 1 staff
How to choose? How to chose your tenant? Look at their accounts? 2-3 years trading
How to choose?
How to chose your tenant?
Look at their accounts? 2-3 years trading history
Look at the company structure
• How many staff do they have?
• What hours do they work?
Is this a growth / stable industry?
• You want a long term safe tenant
• You don’t want them sub-leasing if possible
What is their motivation for buying not leasing?
Are the expanders – can you lease / sell them more
space in the future
Why important?
50 years service charge to pay they need to be strong!
Your other tenants must not suffer!
CBRE | Page 17
HOW? CBRE | Page 18
HOW?
CBRE | Page 18
What to sell? CBRE | Page 19
What to sell?
CBRE | Page 19
What to sell in your building? Choose the least attractive part of your building You

What to sell in your building?

Choose the least attractive part of your building You want to keep the best parts for short term Tenants

The prime space will benefit from the most rapidly rising and most stable rents.

Designate areas of the building for floor sales

split the long term and short term.

Allow some buffer space for the long term player to expand. Lower floors are good for long terms leasin g Keep control of your car parking

CBRE | Page 20

player to expand. Lower floors are good for long terms leasin g Keep control of your
player to expand. Lower floors are good for long terms leasin g Keep control of your
player to expand. Lower floors are good for long terms leasin g Keep control of your
Pricing CBRE | Page 21
Pricing
CBRE | Page 21
 

Price

In order to assess this you need to look at QUALITATIVE and QUANTITATIVE aspects of the property

QUALITATIVE Does it have what tenants want? Does it have a modern specification that will age well in 10, 20, 30 years time

QUANTITATIVE

What are other buildings available at? Is this reasonable What rental price can be achieved?

Potential for rental growth? How long will it take to pay back the initial investment

CBRE | Page 22

CBRE | Page 22

The Criteria and SubCriteria

CBRE use a number of factors to determine the price of a project for both occupiers and investors

Location

District, Distance to CBD, On Major Road, Quality of Commercial Location, Surrounding Road Network, Growing Business District External Construction Quality

External Image, Building Material Quality, Glazing (Single / Double), Curtain Wall Windows, Landscaping

Common Areas

Net Area P er Fl oor, Si ze o f Lo bb y (sqm ), I n terna l Wa ll s (marble etc), Floor Finish, Toilet Quality Internal Office Sp ace

 

Floor To Ceiling Height (2.7m) Lighting, Raised Floor, Pantry

CBRE | Page 23

CBRE | Page 23
 

Criteria & SubCriteria – Cont’d

Building Management

 

Security System, Back Up Power, Telecommunications, Air Conditionin g S ystem , Fire Protection S ystem , Buildin g Management System Quality

Lifts

Lift B rand , Lift Capacit y, Num b er o f Lift , Qua lit y o f Lift s, Lift Lobby, Lifts per sqm Parking

Car, Motorbike

Amenities

Bank, Restaurant, General Surrounding Area Expansion Capabilities

 

None Good Excellent

,

,

CBRE | Page 24

CBRE | Page 24
Benchmark analysis for rent / price determination 250.0 200.0 Flexibility Surrounding Area 150.0 Parking Lifts
Benchmark analysis for rent / price determination
250.0
200.0
Flexibility
Surrounding Area
150.0
Parking
Lifts
Security
100.0
Site Ulitities and Services
Building (Internal)
Building (External)
50.0
Location
0.0
Option 1
Option 2
Option 3
Option 4
Option 5
Fully analyze your project and determine its level
Chose a benchmark property
Determine a price and rent against the benchmark
CBRE | Page 25
The Maths! CBRE | Page 26
The Maths!
CBRE | Page 26
Set Your Rent (ex VAT & SC) Choose a Discount Rate Multiply Together You Have
Set Your Rent
(ex VAT & SC)
Choose a
Discount Rate
Multiply
Together
You Have
your price
Example
$20
(20*12) * 7.12
/ sqm / month
14% for 45
years
$1,700 per
sqm
CBRE | Page 27
Secure a Sale Market correctly CBRE | Page 28
Secure a Sale
Market correctly
CBRE | Page 28

Banners

Banners CBRE | Page 29
Banners CBRE | Page 29
Banners CBRE | Page 29
Banners CBRE | Page 29
Banners CBRE | Page 29

CBRE | Page 29

Marketing Brochures & Announcement Cards

Marketing Brochures & Announcement Cards CBRE | Page 30
Marketing Brochures & Announcement Cards CBRE | Page 30

CBRE | Page 30

Marketing Brochures & Announcement Cards CBRE | Page 30
Websites CBRE website CBRE | Page 31

Websites

CBRE website

Websites CBRE website CBRE | Page 31

CBRE | Page 31

Websites CBRE website CBRE | Page 31
Calling directly CBRE | Page 32
Calling directly
CBRE | Page 32

Advertising tools

Advertising tools CBRE | Page 33
Advertising tools CBRE | Page 33
Advertising tools CBRE | Page 33
Advertising tools CBRE | Page 33

CBRE | Page 33

Events, Open week and talks

Open Weeks & Events

Events, Open week and talks Op en Weeks & Events CBRE | Page 34
Events, Open week and talks Op en Weeks & Events CBRE | Page 34
Events, Open week and talks Op en Weeks & Events CBRE | Page 34

CBRE | Page 34

Events, Open week and talks Op en Weeks & Events CBRE | Page 34
Marketing plan and Budgeting Gantt chart for marketing CBRE | Page 35

Marketing plan and Budgeting

Gantt chart for marketing

CBRE | Page 35
CBRE | Page 35
Management of a Sale Don’t get it wrong! CBRE | Page 36
Management of a Sale
Don’t get it wrong!
CBRE | Page 36
 

Things to consider

Price Payment structure Service charge Sinking funds Sub leasing/ assignments Paperwork Signage rights Parking Area (measurement methods) Right to renew Insurance Notarized agreement

Si gnag e ri g hts Parking Area (measurement methods) Right to renew Insurance Notarized agreement

CBRE | Page 37

CBRE | Page 37
• You have secured a tenant   • You must now negotiate the contract. •

You have secured a tenant

 

You must now negotiate the contract.

There are some important factors to note in this stage:

Price Through CBRE analysis you will be able to determine a fair price for the property

Payment structure – Typically:

10% deposit – signing Memorandum of Understanding 80% - Signing Lease Agreement 10% - Handover d payment term extended.

* B

l

t

b

ildi

f

d

t

ti

ase

on comp e e

u

ng

or un er cons ruc on

CBRE | Page 38

* B l t b ildi f d t ti ase on comp e e u
Service charges What is included in the services? Is the rate variable and is the

Service charges

What is included in the services? Is the rate variable and is the increase capped? Is the building managed by you or a third party? When is the charge reviewed?

Sinking Funds

Have you set up a periodical payment for large items such as replacement of lifts / AHU / Chiller

Sub-leasing / assignment

Is it possible to sub-lease / assign (vital for investors)

y Can they decide upon your sublease rental rate?

Do the

need to get landlords approval (can

ou refuse)

y

CBRE | Page 39

they decide upon your sublease rental rate? Do the need to get landlords approval (can ou
Papers & Documents A lawyer should check documents Ownership License – you will need to

Papers & Documents

A lawyer should check documents Ownership License – you will need to produce Construction License – you will need to produce Authorized Entity (in case of a Joint Venture)

Signage right

Will you permit a right to signage? Is this right transferable to sub-tenants?

Car / Motorbike parking

Will you grant free spaces & how many What is the cost per space Is it an allocated space? Or can the management decide

CBRE | Page 40

spaces & how many What is the cost per space Is it an allocated space? Or
Area Gross / Net How is this calculated (including pillars etc) After Lease Expires Can

Area

Gross / Net How is this calculated (including pillars etc)

After Lease Expires

Can they renew Do you have to pay again?

Insurance

Who purchases? Landlord typically for the structure you for your internal space

Notarized Agreement

Must be notarized – need to submit certain documents

CBRE | Page 41

Notarized Agreement Must be notarized – need to submit certain documents CBRE | Page 41
SUMMARY CBRE | Page 42
SUMMARY
CBRE | Page 42
1.Choose an Area 2. Analyze price CBRE 3 Place on market . 4 Ne otiate
1.Choose an Area
2. Analyze price
CBRE
3 Place on market
.
4 Ne otiate contract
.
g
CBRE will analyze your property and advise a space to sell
CBRE will help you choose the best price
CBRE will help you market and find purchasers
CBRE will ensure you have a strong contract
CBRE | Page 43

Significant Deals 2011

CBRE

A l

i

l

i

ead ng consu tant n

Leasing

L

ong

T

erm

Nokia – 17.25 Hectares (Industrial) Sika – 1 Hectare (Industrial) PVEP – 7,300 sqm (Offices) First Bank 1,000 sqm (Offices) Fubon Bank – 1,200 sqm (Offices) Parkson – 25,000 sqm (Retail) Ascott 20,000 sqm (Serviced Apartments)

1,200 sqm (Offices) Parkson – 25,000 sqm (Retail) Ascott – 20,000 sqm ( Serviced Apartments )
1,200 sqm (Offices) Parkson – 25,000 sqm (Retail) Ascott – 20,000 sqm ( Serviced Apartments )
1,200 sqm (Offices) Parkson – 25,000 sqm (Retail) Ascott – 20,000 sqm ( Serviced Apartments )

CBRE | Page 44

www.cbrevietnam.com

Over 300 markets in more than 50 countries

49 33 Thank You
49
33
Thank You

We obtained the information above from sources we believe to be reliable. However, we have not verified its accuracy and make no guarantee, warranty or representation about it. It is submitted subject to the possibility of errors, omissions, change of price, rental or other conditions, prior sale, lease or financing or withdrawal without notice. We include projections, opinions, assumptions or estimates for example only, and they may not represent current or future performance of the property. You and your tax and legal advisors should conduct your own investigation of the property and transaction.

CBRE | Page 45

and your tax and legal advisors should conduct your ow n investigation of the property and
and your tax and legal advisors should conduct your ow n investigation of the property and