The Lease Renewal Playbook: Four Options Every Tenant Should Weigh
Lease renewals are not rollovers — they are strategic inflection points. In today’s market, concessions are expanding and effective rents are dipping even as base rents remain near historic highs. That creates opportunity.
What’s telling is that even the largest landlords in Southern California, including Prologis and Rexford, are emphasizing renewals on their earnings calls. They see the same trend we do: tenants are focused on cost control, shorter CapEx cycles, and leveraging renewals while waiting out uncertainty. This makes it the perfect time to break down what renewals really mean for your business in this series.
Companies facing lease expirations typically have four options: * Renew at today’s market terms * Exercise an option to extend and negotiate FMV * Right-size (up or down) to match current operations * Relocate to another market to realign their supply chain
Below, we break down each path with data and calculations so you can see where leverage exists.
Option 1 - Renew Your Lease
Renewing is often the most straightforward path, but in today’s market it is rarely a simple rollover. Landlords are increasingly offering concessions to hold occupancy, meaning effective rents are falling even as face rents remain elevated. For companies focused on stability and continuity, renewing at today’s terms with the right concessions can represent meaningful savings without disrupting operations. * Example: In Los Angeles, asking rent is $1.36/SF, but with one month of free rent on a 5-year deal, effective rent is closer to $1.24/SF, which is a 9% savings.
Renewals are still the simplest path when continuity is critical. The leverage is in extracting the right concessions.
Option 2 - Exercise FMV Option to Extend
Fair Market Value options are one of the most underutilized tools in a tenant’s arsenal. Too often, companies accept a landlord’s interpretation of “market” rather than benchmarking against actual deals in the same size range and submarket. In the current cycle, FMV options can unlock substantial rent resets, particularly in markets like the Inland Empire where asking rents are 30%+ below their 2023 peak. * Example: In the Inland Empire, market rents are $1.09 today versus $1.65 at the peak. For a 200,000 SF facility, exercising the FMV option now can reset rent ~$1.3M lower annually compared to peak pricing.
We benchmark renewals against live comps to ensure FMV delivers real value.
Option 3 - Right Size Your Footprint
For many tenants, the last 3–5 years brought expansions that no longer match today’s needs. Right-sizing, whether downsizing excess space or stepping up into more efficient layouts, allows companies to better align occupancy costs with business performance. With concessions at play and a healthy sublease market, right-sizing can reduce overhead, improve operational efficiency, or create new growth capacity at marginal cost. * Example: A company in OC reducing from 250,000 SF at $1.57 to 150,000 SF saves ~$1.9M annually. Another in Phoenix moving from 100,000 SF at $1.07 to 150,000 SF with concessions could grow operations at only a marginal increase in occupancy cost.
Right-sizing can also unlock sublease opportunities for excess space, putting cash back on your P&L.
Option 4 - Relocate or Rebalance Your Supply Chain
Sometimes the optimal move is not within your current market at all. Relocating or rebalancing your footprint to another metro can unlock lower rents, larger concessions, or a closer alignment with customers and labor. With Las Vegas and Phoenix oversupplied while SoCal works through its pipeline, shifting markets has become a viable cost control lever for tenants planning their next 5–10 years. Not to mention economic concessions, labor rates and workforce housing. * Example: A 200,000 SF user in Las Vegas at $1.15 vs. Inland Empire at $1.09 looks like a wash, but IE absorption is positive while Las Vegas is oversupplied (14.4% vacancy in North LV). For many, that means better concessions and flexibility in LV, while long-term rent growth may be higher in IE.
Relocation decisions blend cost, labor, and transportation. We run these models daily.
West Coast Market Data
Hundreds Report
Our Hundreds Report tracks the 100,000–200,000 SF segment across Los Angeles, Orange County, and the Inland Empire — the size range that serves as the bellwether of Southern California’s industrial market. This is where most tenants cluster for warehousing needs, and where shifting absorption and concessions signal broader market trends. Download the latest edition here: <<>>
Owner/User Report
Our Owner/User Report helps companies evaluate whether buying makes more sense than renewing or leasing. With rents off peak levels and user demand driving sales at attractive cap rates, the buy-vs-lease math is worth a fresh look. Download the latest edition here: <<User Report link>>>
Next Steps
Every option has tradeoffs, rent, concessions, timing, labor, logistics. The key is knowing where you stand and which strategy aligns with your next 3–5 years. We are seasoned practitioners: strategists who can help you evaluate renewal, FMV, right-sizing, or relocation at the highest level, and tacticians who can walk the path with you every step of the way to closing.
What makes our team different is that we regularly advise companies with national portfolios, helping executives compare footprints across regions to make supply chain and real estate decisions in tandem.
Give us a shout, share your lease expiration and situation, and we’ll craft a success strategy tailored for you.
Best Regards,
Justin
Justin Smith, SIOR MBA, MRED, MCR, MSCM Candidate Senior Vice President | Principal Lee & Associates | Irvine
D 949.790.3151 C 949.400.4786 O 949.727.1200 jbsmith@lee-associates.com (mailto:jbsmith@lee-associates.com) ____________________________________
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