8 Crucial Tips for Getting the Best Deal When You Renew Your Commercial Lease – Most commercial real estate leases are 5 to 10 years long. Given the length of the lease, many tenants lose track of their lease expiration date. Often times a tenant only realizes the lease is expiring when the landlord, or more commonly the landlord’s agent, reaches out to ask if the tenant will be renewing. Unfortunately, many tenants instantly lose all of their leverage by simply responding that they are interested in staying.
Tenants who have a good relationship with their landlord and/or the landlord’s agent assume their commercial real estate lease will be renewed on reasonable terms and in a timely manner. Tenants often ignore the fact that the landlord has hired a professional commercial real estate broker who is exclusively representing the landlord and who will propose terms as favorable to the landlord as possible.
In fact, landlords frequently offer to renew tenants terms that are not as good as those offered to new tenants. The landlord knows that new tenants are in the market shopping around and that to attract new tenants, the landlord must be willing to match the competition in terms of rental rate, free rent, utilities, tenant improvements, building systems, communications, security systems, electrical capacity, lobby appearance, and other factors. However, if you are a tenant interested in a lease renewal, the landlord presumes – and tends to be right – that you are not shopping around.
Here’s a proven strategy for getting the best deal when you renew your commercial lease renewals — even if you are 100% committed to staying at your current location.
Keep track of your lease renewal date.
Distribute copies of the lease to senior management and calendar it on multiple calendars. You should begin discussing options between 12 and 18 months prior to lease expiration.
Hire an experienced commercial real estate broker that specializes in your property type.
Landlords are typically represented by commercial real estate brokers whose job is to keep the landlord’s building fully leased, and to obtain the highest rental rates and most favorable terms possible for the landlord. You should level the playing field by obtaining your own experienced commercial real estate broker to represent you. The broker should have at least 10 years of experience representing tenants in the type of property you are leasing. For example, if you are leasing office space you want to hire a broker who specializes in representing office tenants. If you don’t know a commercial real estate broker, you can find a broker that holds the coveted Certified Commercial Investment Member (CCIM) designation by clicking on www.ccim.com. In the upper right-hand side of that website, you will see a tab that says FIND A CCIM. When you click on that tab you will be able to search for brokers based on geography and the type of property you are leasing. Although any commercial real estate broker you hire will be working exclusively for you the tenant, the broker’s fee is paid by the landlord. Take full advantage of this resource.
Use time to your advantage.
You need to start early enough so you have time for all the normal phases of site selection, financial negotiation, and analysis, lease negotiation — plus time to walk away from a bad deal and continue negotiations elsewhere if need be. This means that if you plan to renew at your current location, you should be actively assessing your options at least 12 and preferably 18 months before your target move-in/renewal date.
Understand your options in the marketplace.
If you don’t have a good idea what lease terms other tenants in the market are getting now, then you have no way of determining whether a landlord’s renewal proposal is a good deal or a bad deal. Your landlord’s offer could easily be less generous than what other tenants in your building or your submarket are getting. In that case, it would qualify as a bad deal even though it might be an improvement over your original lease. A good tenant rep broker can update you on market rates, concessions, and incentives.
Use your inside knowledge of your current building and/or landlord’s operations to formulate the terms of commercial lease renewals.
As a long-time resident of the building where you plan to renew, you have a key advantage that can help you secure improved lease terms. You know the physical characteristics of the building and how it has functioned in the past. If you have always been dissatisfied with the way the common area lavatories look, elevator waiting times, how the HVAC system functions, etc., your tenant representation broker should be specific about these issues in negotiating commercial lease renewals.
Let your landlord know you are actively seeking alternative locations.
Preserving good relations with a current landlord is often cited by tenants as a reason for “going it alone” when it comes to negotiating a lease renewal. The unfortunate effect of such a strategy is that it reinforces ownership’s belief that you have no options and don’t take the prospect of lease negotiations seriously. It’s a clear sign that you are prepared to settle for whatever is offered. When a landlord understands that you are touring other locations with a broker, they are likely to become more realistic about what your lease renewal is worth.
Understand what it will cost your landlord if you move out.
It is a fact that if a tenant moves, the landlord will incur substantial costs. Those costs include lost revenue, promotional costs, brokerage commissions, infrastructure refurbishment, demolition costs, and build-out costs. In every situation, these costs can be quantified with a high degree of accuracy and should be part of commercial lease discussions with the landlord to maximize the value you get as a renewing tenant.
Be prepared to move if you can’t get market-rate terms.
Ultimately, if your analysis of the market indicates that by moving you will incur substantially lower costs over the term of the lease, this is probably the option you should select. Moving for marginal savings – 2% or 3% — might not be warranted, but if projected savings are 10% or more, this is likely to be your better option.
For more information on lease renewals, contact us today. At Mobiliti CRE we focus 100% on representing tenants with relocations, expansions, contractions, and subleases throughout Tampa Bay and the entire West Coast of Florida. We also assist businesses that are looking to purchase office, medical office, flex and industrial space. Reach out to us for assistance with all of your commercial real estate needs at (813)-300-2227 or email us at email@example.com