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.

1. 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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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 pam@mobiliticre.com

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The Pros and Cons of Investing in Commercial Real Estate: Is It Right for You?

Pro: Incredible Income Potential

Everyone is familiar with the pervading sentiment that investment in real estate is the best way to build wealth over time. 

In this regard, there is no niche quite like commercial real estate for generating a consistent income stream.

As commercial properties will receive rents from multiple tenants simultaneously, owners can expect to see a 6-12% annual yield on the purchase price. This dwarfs the 1-4% standard for renting private residences. As many commercial properties sell for seven figures (or more), this is quite the appealing proposition in terms of ROI. 

Con: Balancing the Needs of Multiple Tenants

There is always a flip side to every coin in life.

While receiving rental income from multiple tenants is undoubtedly exciting, keeping up with the needs of multiple tenants can cause you to work long hours. 

Tenants can be notoriously fastidious–as they should be given current commercial rent prices. 

And since inoperable bathrooms or faulty HVAC not only affects their comfort but bottom line, as well, then you can expect to be receiving phone calls the second any type of issue arises. 

The chances of these calls occurring will multiply many times over depending on the number of tenants currently occupying your building. 

Pro: Professional Relationships

One of the more unsavory aspects of being a landlord is the need to be–ahem–a “jerk” from time to time.

Even the most cold-blooded businessperson doesn’t like having to knock on a family’s door and tell them they have to move out.

While evictions and other types of notices are by no means fun in commercial properties, they are a little easier to stomach than for private homes.

The commercial tenant/landlord relationship is a professional one, with both sides understanding that they are using each other to achieve a business end. 

So when those unpleasant conversations inevitably arise from time to time, it is usually behind the front of LLC talking to LLC and not a tyrant landlord coming down on a poor family struggling to make rent. 

Con: Meticulous Attention to Maintenance

As commercial tenants are using your property to turn a profit, little details matter. A cracked window or damaged siding can’t wait until later. Each precious second could mean the difference between gaining or losing a customer.

Therefore, commercial landlords have to be one step ahead of maintenance at all times. When possible, invest more in high-quality materials that will lower maintenance attention over time. Research metal deck cost and explore the ways it can extend the life of your flat roof. Consider upgrading to hurricane-grade storm windows to prevent damage from wind and projectile impact. 

Pro: Your Property Is In the Public Eye

Another downside to being a landlord for single-family homes is that your tenants will never have as much pride in the property as you do as the owner. Horror stories abound of the cleanup and repair necessary after tenants have trashed their rental homes.

However, this is typically not a concern when renting out commercial properties.

As commercial tenants are public-facing entities, they are just as motivated as you to keep the property in pristine condition. Failure to do so will undermine their profits. 

Con: Additional Legal Considerations

There are various ways to set up commercial leases to absolve yourself of as much liability as possible.

However, anytime a patron slips, falls, and gets rushed to the hospital from a building that you own, you are certain to start shuffling through your paperwork to see if you will be liable in the event of a lawsuit.

Therefore, it is critical to be proactive in your safety and security features to limit your risk as much as possible. Modern smoke baffles and fire screens, a glass railing system around all stairwells and elevated walkways, and an infrastructure of safety doors and credentialed access are just a few ideas for keeping your building as safe as possible. 

Pro: Limited Hours of Operation

Although addressing the needs of multiple tenants can be time-consuming and stressful, there is the benefit of limited work hours. 

If the heat goes out in a single-family home in the middle of the night, you are sure to get a call and be expected to find a solution, regardless of the hour. 

On the other hand, most commercial tenants are only in their spaces during normal working hours, giving you a bit of flexibility. 

If you need to apply crystalline waterproofing to concrete surfaces or shore up a leak in the plumbing, the evening and weekend hours present a nice opportunity not present in residences that need attention ASAP.

Con: Evolving Government Regulations

It is fairly common knowledge that the United States government is eyeing a net-zero economy by the year 2050. Failure to provide a sustainable solution for modern businesses can not only negatively impact your occupancy rate, but possibly subject you to emerging fines and sanctions.

Therefore, it is best to stay ahead of this trend and make your commercial building as energy efficient as possible upon investment. Look into PV technology, the best insulation for exterior walls, motion-detected lights, and low-flow plumbing fixtures as ways to make your commercial space as eco-friendly as possible. 

Is Commercial Real Estate Right For You? Make the Choice Today

If you are willing to put in the work and have an eye for attention to detail, investing in a commercial property can be a great way to leverage the investment benefits of the real estate market. If you are considering a commercial property as an investment opportunity, check out Mobiliti Commercial Real Estate for the latest news and industry insights!

Sam Willis is a freelance writer that loves sharing his knowledge and expertise on commercial real estate. He lives in Atlanta, Georgia where he enjoys spending time with his wife and researching real estate trends in his free time. Sam’s work as a freelance writer can be found on Building Product Advisor, a new construction industry resource site.

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 Reach out to us for assistance with all of your commercial real estate needs at (813)-300-2227 or email us at pam@mobiliticre.com

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Typically there are multiple competing elements that must be weighed to accurately determine the potential return on any such investment, including market analysis of existing tenants and their leases, as well as regional indicators for future growth in industries or job creation. By understanding what factors drive the value up or down, investors can make decisions that lead to higher yields and long-term success.

Strategies to Maximize Your Commercial Real Estate ROI

Making Improvements to the Property

The key to maximizing your commercial real estate ROI is ensuring that your property’s value increases over time. One way to do this is by investing in improvements to make the space more attractive and welcoming to potential tenants. This could include simple upgrades like painting walls or replacing carpeting or more ambitious projects like adding amenities like a gym or rooftop terrace. Another essential part of increasing the value of the commercial property is making sure current tenants are happy and satisfied with their experience. Keeping up with maintenance requests, addressing complaints quickly, and offering helpful services can all increase tenant satisfaction and lead to higher retention rates.

That said, streamlining operations and minimizing costs can free up resources to invest in other areas that will drive growth and improve the property’s value. This could include outsourcing tasks, leveraging technology to automate routine processes, or negotiating better vendor deals. In addition to reducing costs, efficient management practices can lead to a more positive tenant experience, making attracting and retaining high-quality tenants easier. By improving property value, ensuring tenant satisfaction, and practicing efficient management, commercial real estate owners can maximize their ROI and set themselves up for long-term success.

Efficient Property Management

Another key factor in maximizing ROI from commercial real estate is the efficient management of day-to-day operations. For instance, you can set up a system for collecting rental payments on time. Additionally, you can look into adding systems that will streamline customer service processes to help you address the needs of your tenants quickly and effectively. It also involves finding ways to reduce costs by negotiating better rates with suppliers, automating administrative tasks, and reducing energy consumption through smart technology solutions like LED lighting systems. By cutting costs while still providing excellent service, you can ensure that your bottom line remains healthy while still providing an excellent experience for tenants.

Proper Financial Management

Proper financial management involves having strategies for financing, budgeting, and increasing cash flow to maximize your commercial real estate ROI. If you put in the effort to budget correctly, you will ensure sufficient cash flow, which will help you cover all operating expenses. Additionally, you need to:

• Negotiate favorable financing terms.
• Keep track of tax deductions.
• Take advantage of depreciation benefits.
• Understand capital gains taxes.
• Plan ahead for future investments or renovations.

With careful financial management, investors can ensure they are getting the most out of their investments while avoiding costly mistakes along the way.

Using Tenant Acquisition and Retention Strategies

Knowing how to attract and retain high-quality tenants is essential to maximizing ROI on commercial real estate. If you can find renters who will stay in the building for a long time—not just months or years, but decades if possible—you can recoup your investment quickly. To do this, you must create an effective strategy for tenant acquisition and retention. This includes offering competitive rates, providing quality customer service, creating attractive spaces through renovations or upgrades, offering flexible leasing terms, hosting events or activities at the building, etc. These strategies contribute towards long-term tenant retention, which can ultimately boost profits over time through stable rental income streams.

In addition to developing an effective strategy for tenant acquisition and retention, it’s vital to ensure that the building and its amenities meet the needs of high-quality tenants. Conducting market research to understand the preferences and priorities of potential tenants can help inform decisions about upgrades or renovations that will make the property more attractive. It’s also important to remember the specific needs of certain types of tenants, such as those in the technology or healthcare industries which may require specialized spaces or equipment.

Future-Proofing Your Property

While it’s impossible to predict what the future holds for commercial real estate markets worldwide, investors can take steps to prepare themselves for any changes that may come down the line. Technological advancements, like smart buildings, shifting market trends, regulations governing how properties must be managed (for example, minimum energy efficiency standards), and so on, are all things that a real estate investor can look at to keep up with the times. By staying up-to-date on industry news and developments and actively seeking new growth opportunities, investors can make informed decisions that will help them weather any market changes and position themselves for long-term success.

Future-proofing the property is also good if you rent out residential properties. More and more people are looking to move to modern and slick places with the help of residential movers. And nothing will make them team up with the right pros to move to a new FL home as a property with all the technological bells and whistles that exist right now.

Conclusion

If you wish to maximize your commercial real estate ROI, you must use a combination of thoughtful strategies across multiple areas, including property value improvement strategies, efficient operational cost reduction techniques, sound financial management practices, creative renter acquisition approaches, robust retention tactics, and future-proofing measures. By implementing these approaches appropriately and consistently over time, real estate investors can expect overall higher returns from their investments throughout subsequent quarters and years. By staying informed, adaptable, and committed to long-term success, investors can achieve their financial goals and build a strong, profitable commercial real estate portfolio that generates significant returns for years to come.

At Mobiliti CRE we focus 100% on representing tenants with office 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, industrial, and retail space as well as commercial real estate in Tampa.  Reach out to us for assistance with all of your commercial real estate needs at (813)-300-2227 or email us at pam@mobiliticre.com

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Tampa Bay Commercial Office Market Snapshot – As someone who specializes in representing tenants leasing commercial office space in the Tampa Bay region, I have been anxiously awaiting final numbers for Q2 2020 for comparison to Q2 2019.  While final numbers are not in yet/, a quick Costar Report Search revealed the following as of 6/30/2020:

For all classes of property in all Tampa Bay submarkets (including direct and sublease space.

Overall Vacancy was up from 6.8% to 7.2%

Rent was up 3% (surprising but most of the leases finalized during Q2 would have been negotiated prior to COVID-19).

Absorption was down 80% (Net absorption is the amount of square footage that became occupied minus square footage that became vacant).

Keep in mind that prior to COVID-19, office rates in the Tampa Bay region had been rising 5-7% annually.  With approximately 1.2 million square feet being released into the market in the next several quarters expect to see downward pressure on rents.

I will be releasing a more detailed report in the next several weeks when final numbers are available.

In the meantime, should you require any assistance with your commercial real estate needs, do not hesitate to reach out to Mobiliti CRE at 813 300-2227 or pam@mobiliticre.com

Related:

Cost Saving Strategies to Reduce Rental Expenses

Tips for Renegotiating Rent Due to COVID-19

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