Take Charge of Your Lease Renewal
“Who needs a broker?
I can handle my own real estate negotiations!“
Think about it...
Do you handle your own accounting or legal work? Why should real estate be any different? Most Landlords have an experienced and knowledgeable representative working on their side...shouldn’t you?
At Cherry Associates we represent Tenants and Buyers exclusively! Let us help you save time and money on your next office lease, renewal or purchase!
Don’t Become a Captive Tenant!
An office lease renewal should be treated as prudently as a relocation, or for that matter, any major financial commitment. However, many tenants do not approach lease renewals from a strategic perspective. They forget or delay renewal negotiations until the last minute, signaling to their landlord a lack of relocation options. This is a coveted position for landlords – a captive tenant with little if no bargaining power and nowhere else to go!
On the landlord’s side of the transaction, prospective and existing tenants are treated very differently. Landlords typically offer prospective tenants far more competitive deals than existing tenants. Why? Prospective tenants are out shopping the market and landlords, knowing that most tenants would like to avoid the cost and disruption of an office move, must “sharpen their pencils” to attract them.
Conversely, landlords count on this information to work in their favor when negotiating a lease renewal. Landlords bank on the facts that their existing tenant would also like to avoid a move and effective renewal strategies take a lot of time – a rare commodity for most busy executives. Therefore, tenants deprioritize lease renewals, but the lease doesn’t expire for a while and they have more pressing matter to attend to….right?
Wrong! If you are a tenant with an upcoming lease expiration, you need to put yourself in the driver’s seat now.
7 Key Components
To ensure you get the very best renewal terms possible, there are seven key components of an effective renewal strategy you should know:
1 Time is Money
Don’t let time or money slip through your fingers! The renewal process should begin no less than nine to twelve months prior to lease expiration; to allowing time to investigate the market and identify possible alternatives to your current space. After planning, pricing, and negotiating the alternatives, compare them to your renewal offer to see how it measures up. You create maximum leverage in your renewal negotiations by giving yourself time to research viable alternative locations
2 Expert Help
The mere presence of a tenant representative puts landlords on notice that market conditions will not be ignored, and you will be professionally represented in all aspects of the lease renewal. A good tenant representative (one with no owner/client conflicts) can counterbalance the landlord’s team of experts. And as a result, you can continue to focus on your core business while they shoulder much of the burden. Unfortunately, many tenants still will venture to “go at it alone” to preserve relations with their landlord. This is a big mistake – it reinforces the landlord’s belief that you haven’t done your homework, and will likely settle for whatever they offer. Remember – the landlord’s primary goal is to maximize rent income and minimize concessions and incentives.
3 Your Worth
Determine how staying or leaving will impact your current landlord. Every owner and building agent will acknowledge that retaining a high-quality tenant is far less costly than attracting a new one – a fact that should be reflected in the rental rate and concessions, even in a tight market. Chances are, if you move, your landlord will not fill your space immediately and not only will he lose the revenue, but he will also incur additional costs to attract a new tenant, such as promotional expenses, brokerage commissions, and demolition and refurbishment costs. By retaining you as a tenant, your landlord is saving a great deal in time and money.
4 Your Inside Knowledge of Your Building
As a tenant in your current building, you have a key advantage that can help you secure better terms in your renewal. You know the physical characteristics of the building and how it has functioned in the past. If you are unhappy with any building or space deficiencies, now is the time to seek specific quantifiable improvements. For example, if you are dissatisfied with the current look and operation of the common area bathrooms, or the functionality of the HVAC systems, you should negotiate for these improvements to be made in the business terms of your new lease.
5 Market Research
What are the going rates and terms in the office market? If you don’t know, then you have no way to determine whether your landlord’s proposed renewal is a good or bad deal. To avoid paying too much for your space, it is imperative that you perform a thorough market analysis. At Cherry Associates, we can provide you with the latest market information, including available properties, rental rates, and other economic factors. We also know which landlords can offer the best terms of your specific situation such as build-out allowances, rent incentives, and flexible lease terms. This knowledge translates into leverage during renewal negotiations.
6 Competitive Environment
You must create a competitive atmosphere for negotiations. Finding competitive building alternatives that meet your needs will promote competition among landlords and will give you the leverage to cut the very best deal for your company. Even if you have absolutely no intention of relocation, you must identify, price, and even negotiate viable alternatives to your current space. Otherwise, your landlord cannot be expected to negotiate seriously unless you have made it clear that you can take your business elsewhere.
7 Prepare to Move
Even if you are happy with your current space and have no desire to move, you may be surprised at the result of your market analysis. After performing a comprehensive site selection, financial and lease analysis, compare it to your landlord’s renewal offer – you may find that a lower occupancy cost could result from moving. However, you must carefully consider all relevant factors when performing the analysis. A marginal savings may not warrant a move if your current location is more suitable to your needs. For example, if the convenience of your current location is very important or your business is highly specialized or equipment intensive, moving may not be the best decision.
It’s Not An Easy Task
In summary, analyzing the logistical and financial ramifications of a renewal or relocation is not an easy task, and business owners should seek the help of a professional tenant representative. After all, occupancy costs generally represent a company’s second highest expense after payroll. Cherry Associates can help you analyze all aspects of this vital process. We’ll make sure your lease negotiations are as trouble-free as possible and we’ll work hard to uncover every dollar of savings.
