As a commercial tenant, your warehouse space is a critical leg of your productivity and overall spending. And there’s never been a more important time to negotiate a strong warehouse lease. 

The new normal we’ve become accustomed to is on-demand shipping, and this obviously requires better logistics that can support production and quick turnovers. However, this also complicates the position of corporate tenants at the negotiation table. With so many companies scouring the market for premium industrial space, finding the right lease for the right price can seem like an impossible task. 

But don’t worry-it’s still possible. The prepared and knowledgable tenants have the power to negotiate an optimal warehouse lease with favorable features, for a great price. In this article we are going to cover a few ways you can negotiate your best warehouse lease.  

Understanding Warehouse Demand 

Out of all the corporate tenants, those looking for warehouses may have the hardest road ahead. We’re not saying that it will be difficult to find and negotiate the right warehouse, but the fact is that you’re facing the most competition. 

While office tenants looking for new space are benefitting from record high vacancies and low demand, industrial tenants are experiencing the opposite. To accommodate the new normal of online delivery, online retailers have been rushing to scoop up premium industrial space for the last several years. 

According to Propmodo, the country’s vacancy rate for warehouses in 2020 was 5%. While this is already low it has dropped even further. Currently, the industrial vacancy rate is around 3% to 4%. For reference, the national office vacancy rate as of January 2023 is 16.6%, according to the Commercial Edge. 

One of the most effective techniques for negotiating a lease is creating competition for your tenancy. If you have multiple landlords interested in your business, you have more leverage to decide the best terms and price you want in a lease. But, if you’re a warehouse tenant, don’t let this discourage you. It just means you need to be more prepared to compare the price differentials between properties in conjunction with how well they accommodate your needs. 

So, what does this mean for tenants? Conduct research in the market that you’re interested in, and perhaps beyond the market you originally considered. You may have a better likelihood negotiating a favorable lease for your interests in areas with lower warehouse demand. Read our article that covers the 6 considerations to identify your optimal warehouse location: How to Find the Right Location for Your Warehouse.

Come Prepared with Stats 

Since there’s so much competition, there’s no room for error at the negotiating table. For corporate tenants this means getting crystal clear on the optimal building stats of a warehouse (and if they don’t have them add that to a notch in your belt). 

What features in a warehouse do you need to achieve your company’s optimal productivity? Keep in mind things like: 

–       Ceilings with sufficient heights 

–       Floors with sufficient weight-bearing capacity

–       Location with easy ingress and egress

–       Adequate floorspace and cubic storage 

–       Proximity to major highways, rail lines (if necessary), airports or ports 

–       The age of the building, roof, and HVAC system

–       Functional lighting and sprinkler systems

–       Security safeguards (CCTVs, gates, guards, etc.)

–       Accessible dock doors, etc.

Premium warehouse features or more modern facilities will obviously be priced with higher base rents. But, since they will improve a company’s productivity, it may be worth the cost. 

However, if a building is lacking one or more of your specifications, it’s not the end of the road. Your stake in negotiations will change, and you can drive a better deal. When negotiating, what you give is what you get. So, if you offer a long-term tenancy, your landlord may be willing to upgrade the space if they know they will have a guaranteed income. Not only that, but since the warehouse market is so inundated with potential tenants, a longer-term lease may allow you to stand out above the rest. You may get preferential treatment over a short-term tenant. So, when determining your warehouse lease specifications, never forget term length influences negotiations. 

Even if a building isn’t your initial perfect match, it can still eventually be a great fit for your building. If you like the building and location, but aren’t crazy about the internal features, you can possibly negotiate a Tenant Improvement Allowance into your lease. Your landlord may be willing to cover some/ or all of the costs associated with renovation. This is especially true if the features to be built have a usable life beyond your stay. To learn more about Tenant Improvement Allowance and negotiating the maximum package check out this article: What is a Tenant Improvement Allowance?

Because especially now, there’s intense competition for highly functional modern facilities. This means warehouses that support ramped-up, efficient production that also make effective use of technology and sustainability. Older buildings likely can’t supply these promises at the same level or will likely need renovations to compete. So, while you may save in base rent with an older facility, you’re looking at a potentially higher cost (and longer road) to renovate your warehouse. But, because of this you’re in a better position to negotiate. 

If you can’t pin down the cutting-edge warehouse facility right now, you may need to settle for an older building that can be renovated for your needs. Remember, your warehouse’s age is a key leveraging factor in negotiations. With older buildings, may come a landlord who is willing to shell out more funds for a Tenant Improvement Allowance to lock in your tenancy. And, doing so also increases the value of their building. 

The point is that before you can negotiate the right warehouse lease, you need to know what you’re looking for. The list of factors seems endless, from proper ceiling heights and durable floors, to dock doors and HVAC. So, don’t lose track. Learn the 70+ points you need to consider when finding your optimal warehouse in our free video course.  

Keep an Eye on Clauses and Costs 

One of the biggest determinants of your cost responsibility is your lease type. For example, if you have a triple net lease, you, as the tenant, are expected to pay the property taxes, building insurance, and maintenance in addition to rent and utilities. 

This means that the lease negotiations are limited to the costs your landlord is in direct control of.  

The other key factor in relation to the lease type is the building’s age. Older buildings are more likely to demand maintenance. If the burden is on you to cover those costs in a triple net lease, they can quickly add up, becoming extremely expensive. So, when negotiating, never forget to consider the total prospective value of the lease beyond base rent (and how it may differ across lease types). 

Regardless of your lease type, you should still go through the lease terms with a fine-tooth comb. Understand that your landlord’s initial lease draft is a jumping off point for negotiations. There’s a lot of room within a commercial lease for corporate tenants to get taken advantage of if they don’t know what they want or what they’re looking for. Commercial leases are generally written in the landlord’s favor, so if you miss the opportunity to negotiate, you’re missing out on the best price, terms, and location. Knowing which dangerous terms are there (or omitted) and how they often hurt tenants will allow you to avoid the same fate. Learn the 5 Most Dangerous Lease Terms. 

Negotiate Your Best Warehouse Lease With a Tenant Rep

When it comes to choosing a warehouse for your business, there are a few things you need to take into consideration. Define your needs, consider the competition, and compare not only the prices, but how well each prospective site will fit your company. But you don’t have to do it alone, and nor should you.

Tenant representatives are essential to negotiating the best warehouse lease for corporate tenants. Having a knowledgeable tenant rep on your side can help ensure that you get the most value for your money when it comes to a new warehouse. They understand the ins and outs of the leasing process, including what it takes to get an optimal lease and how to negotiate the best terms. The True Tenant Reps™ at iOptimize Realty® regularly save our corporate clients upwards of 30% of their CRE spend and 90% of the time involved.  We have 30+ years of experience finding the best warehouses for the best price, and can do the same for you. Reach out to a True Tenant Rep™ today.