Can I Renegotiate My Office Lease? What Corporate Tenants Should Know

What Corporate Tenants Should Know

Commercial real estate has been hit on all sides for the last few years. But if you’re reading this article, we probably don’t have to tell you that.    

Everyday trips to the office have become a thing of the past. At the same time, a more contemporary working model has placed new emphasis on premium office features, modern amenities, and sustainable regulations. All this culminates in the fact that property owners are feeling intense pressure to compete in this new CRE environment.  

But the strain is not unique to them. Corporate tenants are also feeling some sticker shock. Wasted space has become the quickest growing problem among businesses, creating a hemorrhage in their second most significant cost, real estate. 

But, there's a glimmer of hope - and it lies in renegotiation. 

How do we know this? As True Tenant Reps™, we help our clients slash corporate expenses by reducing the price of their commercial real estate. The way to do this is by renegotiating the leases that no longer fit your needs. In the process, you can cut costs by creating an offer your landlord can't refuse. Learn how.  

Should You Renegotiate Your Office Lease? 

The short answer is, probably yes, but let’s get into the long answer.  

As mentioned above, one of the biggest issue companies have faced because of the WFH movement is the weight of newly underutilized space on their budget. Companies with too much space have been able to counter this issue by optimizing their footprints and cutting square footage where necessary. 

But how do you do it? And are you even in a position to do it? Well, like we said, the answer is renegotiating your lease. 

Any company can benefit from renegotiating their lease, not just those with too much space. And while you may be able to reset the terms according to your optimized utilization, there are other perks you may be able to achieve, including:  

• Resetting your rent at, or below, market value   
• Renegotiating your rental escalation type
• Cutting your footprint 
• Getting a better sublease clause   
• Negotiating for a refurbished TI $  
• Including another period of rent abatement  

For example, since the demand for commercial real estate has dropped so dramatically, rent prices have overwhelmingly sunk. Not only this, but it'll probably get only worse. According to the New York Times,

So, if you’ve been in your current space for a while, you’re likely paying over market value payments each month. With the market behaving the way it has been (and inflation increasing daily), your compounding escalations and higher starting base rate are draining your budget. You could save millions over the term of a lease by reducing your rent to market value. 

Let’s get into why... 

The Value of Your Corporate Tenancy 

CRE demand is pretty much at a record low. However, what’s the inverse of this? The value of your corporate tenancy is at a premium. 

While tenants are losing money from leases that no longer suit their needs, a lot of heat has been on the property owners (not that it’s a competition). But...

Put this into perspective. What do you think will happen over the next few years when the other 70% need to reassess their office space? Let's just say that, it’s overwhelmingly likely that their needs have changed, and they will be looking to optimize where they can.

For some, this may mean smaller footprints. For others, it may indicate an opportunity to move to an office in a more business-friendly state. Learn the Top States Businesses are Moving to.  

If you're looking to relocate, renegotiate, or anything in between, there's certain things you can't afford to get wrong. Take the free course on how to find your optimal office space. 

But, regardless, landlords are in the hot seat as tenants get the freedom to rethink their leases.  

Your tenancy is your landlord’s bread and butter. So, they're likely willing to work with you if this means you’ll stay with them (especially now).

Think of it this way: The worst possible scenario for landlords is vacant space. Your landlord wants to take as few risks as possible with their budget and properties. This often means doing whatever they can to keep you in their spaces, especially if you have a reputation as a reliable tenant. Keeping you ensures that they can rely on an established, trustworthy monetary commitment. So, if you want to extend your lease in your current building, take up extra space, or look for a new lease, you are in a position to renegotiate with your landlord.   

Plus, they know that bringing in new tenants means spending money on marketing to get them to find the space. Then, they are faced with any prospective build-out improvements the new tenant wishes to make.  All the while the clock is ticking until they are able to move in with a new tenant and actually make a profit on their agreement. Renegotiating your current terms may make the most financial sense to them if the alternative is losing your business.   

Renegotiate to Optimize Your Office  

Let’s say that you find your current square footage is sufficient, but you want to make other occupancy improvements. Especially if you’re thinking of extending your lease or renewing, it may be time for a renovation.  

Properly negotiating can even leverage your landlord to issue a new Tenant Improvement Allowance. Doing so will allow them to fund the cost of creating new layouts, updating your office space, or adding more modern features.  

The point is that if you’re willing to sign on for a longer stay, you can get more TI dollars to build the environment you need.  

Landlords, too, will be looking to go with the times and work with contemporarily minded tenants. They will likely be eager to stay ahead of the trends and remain desirable to tenants in a new corporate world. Remember, many improvements made during your stay may still exist after you leave. As such, it may be in their best interest to fund renovations.   

Remember, negotiation is key. What you get is what you give. You have the potential to do all these things. But it will hinge on factors like the demand for space in your area, how long you’ll stay, what would be the most efficient result for your company, and how much space you’re willing to take up.

But, you need an expert an expert by your side. CRE negotiation is best completed by someone who has seen it all. Even sophisticated tenants still may only enter the market once every five years. On the other hand, landlords are in the commercial real estate world nearly every day. To get the best terms and price, level the playing field with a Tenant Rep. The True Tenant Reps™ at iOptimize Realty® regularly save clients at least 30% on their renegotiation. Take for instance the example below, of how much a NYC tenant can save by renegotiating a ten-year lease.

Renegotiate a Better Renewal Option  

If you start early and renegotiate, you can even get a better deal for your renewal.  

Landlords are counting on that you take the renewal option because the terms outlined are likely not still in your best interest. Your renewal should account for this new tenant-favoring leasing environment with a better deal. That's why, if you have the option, you shouldn't wait to begin the renewal process when your lease expires. Consider renewing your lease early. This is an unprecedented opportunity to capitalize on high office vacancies coupled with an oncoming recession.   

You must conduct just as much due diligence when approaching a renewal as you would for a new location. 

So, if you’re approaching a renewal, don’t forget to consider how you can benefit from renegotiating. Your existing agreement will likely not have considered the disruption to the CRE field. Now if you’re renewing and prepared to negotiate, you can reduce your footprint in your current office space, reduce your rent rates, etc.  

The way to achieve this is to create competition for your tenancy. Your landlord will be more incentivized to offer you a better deal if they know that others are vying for your business. Show them that you, as their tenant, can slip through their fingers as their guaranteed income if they don’t come to play.  

Renegotiate with a True Tenant Rep™  

There’s never been a more critical time to rethink your leases. And when you go into renegotiation, you want to trust your knowledge and level of preparation. Because, if you are not familiar with the current market and going rates for buildings like yours, you have no footing to assert your claim for renegotiation. Introducing negotiation to your landlord with another prospective offer will motivate them to accommodate your asking points. If they fear they may lose you, they are usually more willing to compromise. 

So, don’t leave it to chance.  

The True Tenant Rep™ experts at iOptimize Realty® have 30+ years of experience having successful lease negotiations. This means we’ve seen nearly everything and are prepared to leverage the factors for your maximum value. If you want to ensure you’re getting the most from a renegotiation, don’t do it alone. Informed and well-versed support could mean the difference in leaving millions on the table. 

Talk to a Tenant Rep today.  

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