Most business leaders understand that commercial real estate brokers find tenants, landlords, buyers, and sellers for properties. What most people don’t realize is that the majority of the work that tenant rep brokers work on are lease renewals and extensions. Lease renewals and extensions are 50% of the assignments that I work on year after year.
Lease renewals are an opportunity for companies to assess their current situation as a tenant, revisit the commercial real estate market, and use that information to negotiate a better lease agreement. Many executives already know they need to renew their lease because there is no reason for them to move. Sometimes the reason for not moving is simply that everything is status quo. Other times the reason is due to capital improvements and expensive equipment, both of which make moving costly. Whatever the reason may be, the more a tenant understands their leasing options – and how they related to the evolving needs of their business – the better off they will be when it comes to securing a deal.
Consider these six tips when renewing a lease:
- Start early, and keep up with the current market
When it comes to negotiations, it is better to be proactive rather than reactive. In other words, review your lease on an ongoing basis and approach your landlord months before the expiration date.
The commercial real estate market is dynamic by nature. You never know when changing economic conditions may present the opportunity to renegotiate your lease early. In order to take advantage of these openings or opportunities for savings, continually monitor the market. Having more time is always a benefit.
- Assess what your space can/should do for your company
Perform a Real-Time Needs Assessment, then ask yourself “What does our company need in order to be satisfied with this property?” The assessment of the physical condition can be used as a list to think through what the landlord needs to do to get the property in a condition in which you would consider renewing your lease. Some items to consider include amenities for employees, optimal office configuration, and updated technology infrastructure.
Once you have identified these needs, include them as discussion points in the lease renewal negotiation. In some cases, your landlord may be willing to incur some of the update costs, if it means keeping you as a tenant.
- Understand how your landlord will benefit from a renewal
When existing tenants renew agreements, landlords receive financial benefits. When a tenant leaves, however, the landlord suffers a loss in rent, and incurs additional expenses needed to make updates or renovations and market the vacant space.
This presents an opportunity when it comes to lease renewals. In order to take advantage of the situation, it is critical to understand the landlord’s current position, including his or her overall portfolio, and the impact and value your lease has within the market.
- Research alternatives in the market
Take the initiative to educate yourself on other buildings and owners in the market. Even if you intend to stay in your current space, you may discover alternative solutions that are worth exploring. For example, other owners may offer different contract terms, lower taxes, less debt or more desirable amenities. Either way, you can use these differentiating factors when you negotiate your lease renewal, creating incentives for you landlord to make you a better offer.
- Form a plan
Be prepared to hear no. In other words, do not enter the renewal process giving your landlord the impression that you fully intend to stay. If they believe renewal of your lease is guaranteed, this may be used against you in the negotiation process. For example, the building owner could decline your requests, seek less favorable terms, or be less inclined to negotiate than if he or she thought you were considering other locations.
By creating a plan, you will not only be able to benefit from a lease renewal, but also show the landlord that you have done your research and are in a position to negotiate.
- Consider hiring a broker to help you negotiate properly
Good brokers are always aware of current market conditions and opportunities. Therefore, they can help you leverage this information when it comes to negotiating. If your company is not familiar with the market and rental negotiations – or doesn’t have someone with the time to properly manage and re-negotiate – consider representation through a firm.
Pro Tip: When it comes to renewing a lease, start early, assess your needs, understand your landlord’s perspective, research alternatives, form a plan, and hire a broker if necessary to ensure your company ends up with a lease renewal that improves efficiency and creates value.