How Commercial Tenants Can Negotiate a Successful Lease Renewal

Negotiating a lease renewal can be a daunting task, but it's an essential step for commercial tenants who want to get the best deal possible.  

If your commercial lease end date is in sight, you have some tough decisions to make. But, do it right and you may be able to save your company millions in the process. In this article we will cover your lease renewal options and the keys to negotiating a successful renewal now. 

Develop a Comprehensive Lease Management Strategy 

The first step in effective lease management is to develop a comprehensive strategy that takes into account all of the properties in your portfolio. This includes identifying lease expiration dates, tracking important lease terms and conditions, and analyzing your occupancy costs. 

By centralizing your lease management data in a single location, you can easily track and manage your leases, and quickly identify areas where cost savings can be achieved. This can help you to negotiate better lease terms, avoid costly lease extensions, and ensure that your portfolio remains aligned with your business goals. Our patented software tool, REoptimizer®, does just that.

If you aren't keeping track, the right to exercise your options, renew your lease, anniversaries when rent increases, and other key dates, can quickly sneak up on you. Sometimes these terms will renew automatically, so if you miss the window of cancellation, you’ll be stuck paying for space you didn’t want.  

Conversely, if you don’t reach out by a certain date, you may lose options or rights of renewal. So when keeping these critical dates in mind, you want to give your organization enough time to meet internally and determine the best real estate moves. That leads us to our next point... 

Start Your Lease Renewal Early 

One of the best ways to minimize costs and maximize benefits is to begin examining your renewal option and leveraging it against the market as early as possible.  

By renewing your leases early, you can avoid costly lease extensions, lock in favorable lease terms, and maintain control over your occupancy costs. It is advised that you begin exploring your options six months to 2 years before the end dates. This will allow you time to fully consider where your property is compared to the market, and your own company’s needs. In addition, being generous with your time will allow you to conduct the appropriate due diligence to pinpoint where there is room to improve on one location or an entire portfolio. 

This is especially pertinent now more than ever. The commercial real estate sector is currently experiencing tremendous vacancy rates which represents an unprecedented opportunity for tenants to capitalize on low demand coupled with an oncoming recession. So, if you're still not directly approaching the end of your term, consider renewing your lease early.

Examining Your Existing Lease Renewal Options  

Why is it that most logical tenants would never sign a commercial lease without thorough analysis but many lease renewals aren’t treated with the same due diligence? In terms of a financial and time commitment, they’re essentially the same. Yet, not treating renewals with the same level of analysis is one of the top mistakes commercial tenants make, learn the others in the following article: 4 Most Common Mistakes Made By Tenants in Lease Renewals.

Tenants should be treating their renewals as if they were new leases. This may even give you a new perspective when pitting it against the market. Consider the surplus space versus the demand, and it makes sense why landlords have never been more desperate. Vacancies are increasing by the day, with even more expected to flood the market in the next few years.   

Maybe the original conditions of the renewal are no longer the best option, or your needs have changed. But, unless you’re weighing the available options in the market, there’s no way to know if your deal is good. 

From this stage, you should understand what your goals will be in negotiation. Perhaps it’s resetting your rent to market value or receiving a tenant improvement allowance for updates and renovations. But, be prepared to understand your landlord’s perspective as well. They likely won’t be willing to shell out a generous new TIA if your renewal option is relatively short term. Their offer has to be worth their while.  

Cut the Bulk in Your Portfolio  

Many tenants who wish to renew now are hoping to downsize. From top tech companies like Google and Meta to major financial firms, businesses are looking to cut costs they're losing on real estate when any employees are working from home.  

For many tenants, cutting space through a right-size analysis is the answer to operating a hybrid-prevalent work environment and still saving money. If your business has unused space, you can improve your utilization now. So, consider where there is bulk in your commercial leases and overall portfolio. But, again, don’t expect your landlord to just cut your footprint in half. Renewing a commercial lease is a process that requires a lot of push and pull between tenants and landlords. In order for them to see cutting your rentable space as worth it, you would need to guarantee them long term tenancy (which is extremely valuable right now.) 

So, If you want to downsize during your commercial lease renewal, you may able to do so. Vacancy rates are high (and sure to only climb more as 70% of leases reach their renewal options according to the Office Apocalypse), landlords are more likely to agree to favorable terms in the negotiation process. This could mean cutting space, more free rent, increased landlord contributions for tenant improvements, or more desirable amenities. 

But, the key is you get what you give. That’s why you want to level the playing field.  

Partner with a Tenant Rep Broker 

Tenant representatives are the key to getting the most out of negotiating a lease renewal. They have a deep market knowledge and are on top of trending developments like current lease rates and availability of space. This expertise allows them to negotiate favorable lease terms and renewal options that benefit the tenant. 

Working with a Tenant Representative also provides a level of objectivity and neutrality that is often lacking in direct negotiations with landlords. Tenant representatives work solely on behalf of the tenant and have no conflicts of interest, which means they are able to provide unbiased advice and recommendations. 

Furthermore, Tenant Representatives have extensive experience in lease negotiations and are skilled at navigating complex legal agreements. They can identify potential pitfalls in lease language and negotiate on behalf of the tenant to ensure that their interests are protected. They can also provide market analysis and data to support their negotiations, giving tenants a competitive advantage in lease renewal negotiations. 

By working with a True Tenant Rep™ from iOptimize Realty®, commercial tenants can ensure that they are getting the best possible deal and that their interests are fully represented. They can also save time and resources by delegating the negotiation process to an experienced professional, allowing them to focus on their core business operations. Get started with a quick meeting today.