Top Considerations for Office Tenants Approaching Lease Renewal

In this article, you'll learn:

• Key steps to prepare for your office lease renewal.
• How to leverage current market conditions for better terms.
• Tips for reducing office space and optimizing rent payments.
• Why working with a tenant representative is crucial for negotiations.

As an office tenant, you have the power to make decisions about your lease renewal that prioritize your business needs. Because with commercial offices closing globally, corporate tenancy has become all the more valuable a commodity.

Still, if your commercial lease is approaching its end date, you face difficult choices. While ditching your office space entirely may seem like a viable option, it's not always feasible, especially given the uncertainty surrounding if and when remote work will ever end. Fortunately, there are ways to be smart about your lease renewal options and ensure that your business needs are met while also maximizing your lease renewal terms. 

Paying Attention to Your Current Lease

The key to negotiating your best lease renewal lies in your current lease. It is the first step for understanding your current space usage, its limitations, ultimate frame of reference for time.

Stay Aware of Key Dates

Because you can only improve your lease if you do so within its built-in timeframe. 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.

Start Your Renewal ASAP

Renewing your leases before they expire can help you avoid expensive lease extensions and secure favorable terms. It's recommended that you start exploring your renewal options up to two years prior to the end dates.

This will give you enough time to assess your property's position in the market and your company's needs. Additionally, giving yourself ample time will enable you to conduct thorough due diligence and identify whether renewing where you are, or finding a new location is best for your business.

Because at the end of the day, understanding your current lease is the key to negotiating a better lease renewal. You should understand what your goals will be in negotiation. You can only break free from the terms, rates, or square footage that no longer serves you if you identify that it’s a problem.

For many, their space needs have greatly evolved, even in the last few months and years. So, an approaching lease renewal is the opportunity to think hard about what you want so you can make improvements. You have the power to establish your priorities and get the best deal.

Leverage Your Original Lease 

Tenants should be treating their renewals as if they were new leases. This means forget about your existing lease for the moment and objectively think about your goals for office space. Because this fresh gaze may even give you a new perspective when pitting your lease against the market. 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 how good your deal is. 

Vacancies are increasing by the day, with even more expected to flood the market in the next few years. Your new lease agreement should account for this new tenant-favoring leasing environment with a better deal. That's why, like discussed, 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.

Starting early is the key to both optimizing lease renewals and increasing the likelihood that you will find the best space, for the best price. Enroll in our free video course to help secure your next office space.

Is Your Current Lease Optimized? 

Even if you have an existing lease, you likely have some room to work around the terms and rates in negotiations for a renewal. And the elephant (that's not) in the room is that you probably don’t need as much space as you did when you first signed your lease.

If you are maintaining your office space, it’s more likely than not that you can benefit from cutting down your corporate footprint. The companies that are renewing are largely slashing the amount of space they occupy to come closer to their ideal utilization so they are efficiently functioning and not losing money on underused spaces.

So, now is the time to consider where there is bulk in your commercial leases and overall portfolio. 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.

Consider Your Landlord's Position

And if you’re approaching a renewal, it’s the time to let your landlord know that you’re interested in a smaller footprint. As discussed, landlords are more willing to play ball now than ever. That being said, you have to make it worth their while. Your landlord probably won’t agree to a renewal that solely slashes their space that you occupy. Think about the money they would be losing- not to mention the responsibility, time, and expenses required to find a new tenant to fill the space (when the market is already flooded with available properties).

So, if you want to cut your footprint, consider signing for a longer term than your original renewal. If you give your landlord a long-term commitment, they know that they can make more stable income over time, and will be more willing to give you better incentives to renew your lease.

And that brings us to the other reason why you should apply sufficient due diligence to your lease renewal.

Reset Your Rent Payments

Rent escalations are expensive! If you signed your lease several years ago you likely have it even worse because you’re paying the expensive base rent you negotiated when you signed your lease coupled with costly, compounding escalations. What you really should be looking to do in your renewal is take advantage of this tenant-favored market and vet your ability to reduce your rent to market value. You can always create competition for your tenancy with other landlords and bring leverage during negotiations.  

Renegotiating a renewal can also land you perks like a new or higher tenant improvement allowance. In addition, renovating your space is a great way to fine-tune your working environment without moving. Similarly, you may be able to secure a negotiated period of rent abatement, which will benefit your budget the year it's applied. The length and starting period of your abatement will depend on your unique commercial lease agreement.

However, know that most tenants have the potential to reset their rent to fair market value in lease negotiations. If you've been in your current space for several years, your base rate of the initial lease may have been solidified when demand was high.

You should be considering questions like:  

• Are occupancy rates higher / lower than when you signed?  
• Have property values or rents increased / decreased? 
• Has new construction increased vacancy rates?  
• Has your building been renovated recently? 
• How long has your landlord had this space vacant?

Your answer to the questions above will key you into how much room you have to negotiate down rent rates.

Launch Your Renewal Tenant Rep

When it comes to negotiating a lease renewal, having a True Tenant Rep™ can make all the difference. 

A True Tenant Rep™ will analyze where the terms and rental rates of your original lease show room for improvement. Then, they execute by adopting a strategic approach to help optimize your leases. This means discovering when (and what) your optimal renewal period is, deciding the terms and price that make the most sense, and negotiating with your landlord to make sure you get the most out of your renewal option. And, if you want to start early, they'll help you forecast.  

They have the market knowledge, negotiation skills, and advocacy to help you secure the best possible lease terms and maximize your occupancy cost savings. So, before you enter into any lease renewal negotiations, be sure to seek out a True Tenant Rep™ to represent your interests.

Want to keep learning about optimizing lease renewals? Read more:

4 Most Common Mistakes Tenants Make When Renewing a Commercial Lease

How to Win Your Commercial Lease Renewal Negotiation