Whether your company’s corporate real estate is your primary responsibility or you’ve been thrust into this role, there’s always room for a refresher.
So, sit back, relax and learn. In this article, you'll uncover some of the tips that will step up your CRE game. Our position as Tenant Reps has allowed us to identify the most efficient methods to streamline our corporate clients' commercial real estate (CRE) portfolios. To save you time and money, we’ve included some methods gathered from our 30+ years of experience that will improve your corporate leases' success.
- Plan for the Future
- Know Your Market Inside and Out
- Never Lose Track of Space Utilization
- Take Advantage of Concessions
- Understand the Value of Economic Incentives
- Team up with a Tenant Rep
1. Plan for the Future
As Tenant Reps, we are in the real estate market every day. We consistently study CRE trends which allows us to achieve optimal solutions and the 33% savings that our corporate clients typically experience.
So, if you’re not working with a Tenant Rep (or even if you are), we recommend starting your CRE search by getting strategic. Consider the projection of your company’s needs and how they can be fulfilled in an ever-evolving marketplace.
- Where is the future of commercial space going?
- How many employees will work in the office?
- How will WFH/ remote work affect your company's space utilization?
There’s no easy answer to these questions. However, since the WFH revolution, the changing landscape of CRE has been discussed ubiquitously.
It’s obvious that commercial real estate is ever-changing, and for some time, experts predicted that employees would never entirely return to the office. Since then, employers and staff alike have considered the connectivity of in-person workspaces an invaluable asset. Despite the WFH popularity in the media,
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“85% of major employers want their staff back in the office at least half of the time,” |
According to Forbes.
While many companies like Yelp, Meta, and Amazon are cutting some degree of office space, not every organization is. The trend is now towards flex or hybrid-friendly working environments that are smarter about space utilization and how people prefer to interact with their workspaces.
Instead of slashing their square footage, “employers are reshaping offices to become more inviting social spaces that encourage face-to-face collaboration, creativity, and serendipitous interactions.” Harvard Business Review
Regardless of your decision, it is key to consider how future needs may implicate your spatial requirements.
Contemporary issues need modern solutions. Make sure you’re not left behind as CRE evolves.
2. Know Your Market Inside and Out
There shouldn’t be any uncertainty regarding the prices and terms properties in your area offer. If you're several years into an existing lease or looking to relocate, you should know what other landlords are asking for in comparable buildings.
This market knowledge is invaluable to getting the best deal. It empowers you to properly leverage your tenancy for all it is worth.
To get the best deal on a new or renegotiated lease, familiarize yourself with:
- Vacancies in the area
- The amenities offered
- The building’s condition
- Terms and concessions other landlords are offering
- The going rate per square foot of office space in your area
For example, Manhattan has the second most expensive rent in the country. However, its office vacancy rate has been climbing in recent years, now reaching 16%.
Demand is dwindling and has been in recent years. According to the NYC Comptroller’s Office,
“Average asking rent has declined since 2020, as office inventory has increased substantially."
Knowing how the demand fluctuates in your area will allow you to pounce when rates are low. Any tenant who is been in a lease for several years can take advantage of dips in demand.
If you’ve been in your current space for a while, you’re likely paying an expensive base rent compounded with escalations. This means that if you're in a position to renegotiate, you can cut those costs. By resetting your rent to the current market value, there is the potential to encounter big savings.
Take, for instance, a company that signed a 10-year office lease in Manhattan in 2019.
Graph Courtesy of the NYC Comptroller’s Office
With the market behaving the way it has been (and inflation increasing daily), their compounding escalations and higher starting base rate mean they're paying more than they should. As a credit-worthy tenant, it would be in the best interest to renegotiate. Your landlord may be willing to reset your rent if you sign on for longer because there is so much uncertainty in the CRE market. Their next tenant is not necessarily guaranteed. So, when you ask for a longer term, you're building a win-win situation.
They get a credit-worthy tenant to extend their stay while you could slash costs.
If you’re knowledgeable about negotiation and the fluctuating market in your area, you could potentially save millions over a lease term. So, if you’re not equipped with this market knowledge, get someone on your team who is (like a Tenant Rep).
3. Never Lose Track of Space Utilization
Wasted space is expensive. So why do so many companies put up with the costs of working in an underutilized commercial space?
With the emergence of the WFH movement, the problem of underutilized office space has only become worse for most organizations.
This is one of the most common ways businesses can potentially lose millions over a lease’s term or within a portfolio. However, keeping a close eye on the space utilization of each of your properties will stop this problem before it occurs. If you find you have extra space and you're several years into an existing lease, you can possibly renegotiate to reduce your footprint. However, if you're not in a position to renegotiate, you can alleviate the effect of underused space by subleasing.
As your portfolio grows, it's easier to lose track of your optimal space utilization for each property. Underutilized space is expensive, especially when it adds up from 5, 10, or 15+ properties. Reassessing your space utilization should allow you to keep an eye on your portfolio (and where you can improve it).
Right-Sizing could be one of the most effective tools to achieve a lower overhead. To learn more about how to get efficient with your space utilization, check out this article: The Benefit of Right-Sizing your Commercial Spaces
4. Take Advantage of Concessions
Landlords will often offer concessions to tenants to sweeten any prospective deal. These inducements can bring on a win-win for tenants and landlords. Landlords can land a creditworthy tenant in their property, and tenants earn extra perks that may fit their needs.
Common concessions may include:
- Rent abatement
- Tenant improvement allowance (TIA)
- Relocation allowances
It is in your best interest to not only negotiate for concessions but to understand how they affect the Net Present Value (NPV) of your leases.
So, take advantage of concessions, but never lose sight of how they can implicate your spending. For example, make sure that if you're renovating, you don't far exceed the offered TIA, because you're responsible for any costs over what your landlord provides. If you amortize these additional payments, consider how it would affect your rental rate.
Any lease clause can potentially cost you valuable CRE dollars if improperly negotiated. That is why it is critical to be prepared with a thorough cost and benefit analysis to determine how concessions will impact the overall value of their lease.
5. Understand the Value of Economic Incentives
Local, regional, and state governments (as well as some not-for-profit organizations) may have economic incentives available to help fund some of the cost of your move-in, lease expenses, or tenant improvements. So, if you’re considering a new location, you may want to see if there are any incentives you qualify for that may make your lease more affordable.
And just as you can create competition among landlords, you can do the same among states and municipalities for the maximum package.
Knowing what you can count on before you commence lease negotiations can give you a stronger position.
Economic incentive packages can be quite generous for the right organization. Consider it like this: Businesses bring in jobs to communities. This translates to more taxable revenue. By luring in companies with incentives, communities can bring on a win-win situation.
6. Team up with a Tenant Rep
Teamwork makes the dream work. This is especially true if your dream is reducing your overhead while streamlining your space utilization and getting the best terms for your leases.
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True Tenant Reps are unbiased CRE professionals who protect your interests and your interests alone. |
So, whether you’re looking to renegotiate an existing lease, cut wasted space, renovate your properties, relocate, or beyond, a Tenant Rep is an invaluable asset for your company.
At iOptimize Realty®, we are Tenant Reps who regularly save our corporate clients up to 33% of their CRE costs and 90% of their time. We achieve this through dedicated, unconflicted service that goes above and beyond what traditional brokers can provide. In addition, we act as your ad hoc CRE department. This means bolstering the ability of your existing CRE team if you have one. Or, if your company functions without a real estate department, we step in to fill the void and optimize individual leases or your entire portfolio.
All this sound good? Talk to a Tenant Rep yourself today to learn how you can start saving millions and hours wasted stressing over corporate leases.
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