Petr Florian (Avison Young) says office tenants aren’t getting full value from their real estate agents if they’re collecting fees from building owners. That doesn’t work for lawyers, he argues, so why should it be any different for agents?
The issue becomes particularly acute as Prague’s office market faces unprecedented supply constraints. With virtually no new construction in the pipeline, companies requiring substantial space will find themselves in increasingly difficult negotiating positions. “If you’re growing and need a bigger office—say 2,000 sqm—you’ll be in serious trouble finding one in a good location,” Florian warns. “That’ll be the huge challenge for these bigger companies in coming years.”
This supply shortage will shift negotiating power back to landlords for the first time since the financial crisis, making genuine tenant advocacy essential rather than optional. Under the traditional payment model used in the last couple of years, agents collecting landlord commissions face inherent conflicts when pushing for the most aggressive tenant terms.
Florian says that’s why Avison Young’s preferred approach uses a fee structure based on tenant-paid commissions tied to achieved savings. “The landlord has a certain amount of money for incentives anyway, and that includes potential agents’ fees,” he explains. “So it’s coming from the tenant’s pocket more or less anyway. Let’s make it clear from the beginning.”
To put it more bluntly, says Florian, landlords pay agents a percentage of the rent agreed in the lease. So the higher the rent, the more agents are paid. “It’s counter-intuitive. Agents have no incentive to negotiate lower rents or higher incentives.”
Tenant representation (meaning the tenant pays the agent) is only gaining relevance as fit-out costs continue creating market dysfunction. Escalated construction expenses have effectively trapped many tenants in suboptimal spaces, with companies reluctant to move despite better alternatives. ” We rarely see clients moving after their second lease term (8-10 years), which just a couple of years ago was standard practice,” Florian reports. “The fit-out costs are still extremely high.”
Even with relocation incentives reaching €250-350 per square meter compared to €100 for renewals, total occupancy economics frequently favor staying put. This complexity demands advisors capable of modeling comprehensive cost scenarios rather than presenting simple rent comparisons.
Market misinformation compounds tenant challenges. Despite persistent claims about rent stagnation, pricing continues advancing across quality locations. When asked about claims that prime space is trading at decade-old price levels, Florian’s response was blunt: “That’s simply wrong.”
“Five years after Covid and people said office is dead, it’s actually really just more of the same,” Florian observes. “Offices just look a bit different.”
The reality, then, is that companies can’t rely on dramatic downsizing if they’re looking to cut costs. They’d do better, says Florian, to engage advisors with clear, transparent fee arrangements that align interests from the outset.
Also in ThePrime
ThePrime Pod: Karel Stransky on the regionalization of supply chains
