How your company handles the acquisition of new sites, or the renegotiation of existing leases will have a significant impact on your its bottom line. Consider for a moment, that next to human capital costs, real estate is typically a company's second biggest operating expense. There’s no room for mistakes.
It is also quite typical for a corporation to have anywhere from a dozen to upwards of a hundred leases. The proper and thorough management of which can be a daunting task especially in today's rapidly changing commercial real estate market. For the moment, let's focus on the 4 steps that will help you achieve optimum results for a lease renewal negotiation.
1. Treat Your Renewals Like New Leases!
First let us dispel a common misnomer that lease renewals don’t demand as much analysis or due diligence than the acquisition of a new site.
We’ll respond with a question: Do they not both have the same exact expenses of rent and the other ancillary costs of a lease?
Obviously, they do. Yet we often see corporations apply considerably more due diligence into the acquisition of a new site.
Why is this? Unfortunately, tenants often get comfortable in their space and may even have a renewal option already built into the existing lease. Signing on may seem like a no brainier and time-saving option but is one of the most critical errors you can make in commercial real estate.
You’re essentially forging another multi-million-dollar, time-intensive deal. Why should this be treated with any less thorough financial and market analysis than an original lease? Do the very least you can, and prepare yourself.
Unfortunately, companies often leave millions of dollars on the table for a property that no longer fits their needs while better opportunities waste away.
2. Leverage the Market by Starting Ahead
This goes hand-in-hand with the point above. The key to reducing your CRE costs by getting the optimal lease is creating competition among other landlords. Your landlord will be more incentivized to offer you a better deal if they know that others are vying for your business. Make sure you give yourself enough time to do this properly.
Reference the current market and compare it against when you signed your lease. If you have an existing renewal built into your original lease know that it may no longer be the most fiscally sensible option. This is especially true because since we’re dealing with commercial leases, it’s likely that the dotted line could’ve been signed ten years ago. Consider all the factors in the market that have shifted since then.
For example, take the current record sublease availability. You can use this (and other factors) to leverage your best deal.
To get the best deal now, weigh your space utilization, the percentage of vacancies in the area, and the optimal term length of a lease to analyze where there’s room for improving your renewal terms and price. The key is conducting an extensive cost-benefit analysis of the comparable properties in your (and alternative) markets. This will give you a better footing for negotiation.
Obviously, all this takes time. Don’t wait until the last year of your lease to consider your renewal options. You can start years out from the renewal date and doing so may increase the potential of you getting the best deal.
It takes potentially 6-9 months to execute a lease, and then you’re looking at another three months to build out the space. Again, treat the renewal with this same time consideration. Therefore, start conducting market research 24 to even 36 months before your lease expires to maximize the potential for your deal.
Whether you're about to negotiate your office lease renewal, or looking for new office space, there are many factors to keep in mind. Enroll in our free video course today, to avoid costly mistakes!
3. Beware the Conflicted Broker!
It's not uncommon to see a busy executive, perhaps stretched in many directions, just call a local broker to get some market comps, and perhaps perform a cursory look at some of them. Finding viable sites and alternatives, then conducting a thorough cost-benefit analysis of each requires a high level of due diligence that is nearly impossible were you to take on the task alone.
Thereafter, that busy executive may have a few phone calls with the incumbent landlord to negotiate a "competitive" deal. This is further exasperated by the fact that most real estate brokers are professional salespeople, rather than their client's real estate expert and consultant.
Most don't have a standardized and perfected method for achieving optimal results for the tenant. Of course, far worse is the broker that has conflicts of interest. Simply put "conflicts cost"!
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When a broker, or their firm, represents one of or more of the properties that you are looking at it creates a situation in which they must try to negotiate for both sides in the transaction. |
Ask yourself this: Would you ever use an attorney who represents the other side? Of course not. It's a rhetorical question, and if they even attempted it, they could be disbarred. So, why should it be any different on a multi-million dollar corporate real estate transaction?
That is why you need to work with a True Tenant Rep™ broker. Since they only represent tenants, you know that you’re getting the best possible deal for you, not your landlord. True Tenant Reps™:
- Provide unbiased market intelligence - without which you're flying blind
- Increase the competition for your tenancy by 2X to 3X
- Offload up to 90% of the CRE tasks
- Handle RFPs, negotiations, collaborates with your attorneys on lease reviews
True Tenant Reps™ will walk you through the process of lease renewals, when the best time to renew is, and conduct negotiations with your landlord to ensure you maximize the value of your tenancy. Check out: What to Look for in a Tenant Representation Broker (And What to Avoid).
4. Start with the End in Mind
The true purpose of your corporate real estate is to amplify your company's productivity and profitability.
A renewal is the best time to consider the 3 R's:
- Right-size
- Renegotiate
- Relocate
Just because you’re renewing an existing lease doesn’t mean you have to remain in the space “as is.” You have room to negotiate for the features and/or renovations that will improve its utilization. This requires isolating your “Key Site Drivers™.” Once you identify the necessary qualities for an office space (and the ones that will go above and beyond standard furnishings), you can optimize your lease around them.
If for instance, we are talking about a headquarters location, then productivity and profitability are enhanced when we consider such human factors as commute time, exercise facilities, convenient daycare and the proximity of good local restaurants. Furthermore, as humans, our general feelings about the place we work can be greatly affected by the look, feel and ambience of the location.
On the other hand, if we are talking about a warehouse/distribution facility, the importance of other features is pronounced such as proximity to major highways, proximity to clients, adequate ceiling height for our racking perhaps become the dominant key decision factors.
If you're looking for new warehouse space, there's things you don't want to mess up. Learn all the safeguards you need to know that will land you the perfect warehouse in this free course below.
The key is to identify what’s important in a space so you can keep those features in mind, and orient your lease negotiations around them.
Get the Best Lease Renewal with a True Tenant Rep™
Corporate lease renewals regularly leave millions on the table. This is because unfortunately, many professionals don’t treat renewals with the same due diligence as an original lease and lose track of their most important needs. Or they make the critical error of working with a conflicted broker who doesn’t have their best interests in mind.
Avoid the nightmares and get the best renewal possible by working with a True Tenant Rep™ at iOptimize Realty®. With 30+ years of experience negotiating leases and renewals with corporate landlords, you can rest assured that your lease renewal will be handled with care. Our service is characterized by unmatched due diligence and attention to our corporate clients’ needs.
Talk to a True Tenant Rep™ today to learn how you can get the best lease renewal.
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