Most companies and small business owners that negotiate commercial leases on their own do so at a huge disadvantage. For one since they typically only sign a lease once every 3-5 years they don't have as much transaction experience as an experienced commercial real estate agent that negotiates commercial leases for a living. I've been doing this for over 12 years and been involved in over 400 commercial lease negotiations. Because of that I often find myself in similar situations and know exactly how to negotiate them, however I also learn a better or different way to negotiate in certain situations every time.
Another reason “do-it-your-selfers” are at a disadvantage in commercial lease negotiations is because of their lack of market knowledge. Commercial real estate markets change every year. Building owners change. Tenant markets turn into landlord markets, Listing agents change. A full time commercial agent keeps up with market trends and transactions. They keep up with new building owners and learn their investment strategies which is key to knowing how to negotiate with them.
All that being said knowledge is key to knowing how to get leverage in commercial lease negotiations. If you insist on negotiating on your own I want to make sure you are prepared so below are a few ways for you to get leverage in your next commercial lease negotiation.
- Start the Process Early – If you wait until 30 days before your lease expires then the landlord knows you don't have time to consider any other options. Depending on your market and size space start the negotiation process at least 4-12 months before you need space or before your lease expires. You may feel like you are starting the process too soon however if you want leverage you need time to negotiate. Landlords will try to drag things out if they don't to concede to something. With time on your side you have more leverage.
- Get To Know Who Your Negotiating With – Are you negotiating with the landlord listing agent, the building owner, asset manager, or all the above? Find out who they are and what their experience is. Find some common ground with them. Check LinkedIn to find out their background. Find out what they are proud of or what they have accomplished and compliment them. Feeding their ego is a great source of inspiration for them to give concessions. It may make them feel magnanimous. Search the internet for their profiles and other info.
- Find Out Their Position on Things – Ask a lot of open ended questions to identify their wants or needs. Why are they asking for certain things? Why won't they agree to your request? Get to know their bottom line by asking about their investment strategy. Are they looking to sell the building or are they a long hold investor?
- Be Silent When Necessary – Silence can make people uncomfortable to the point of jumping in and offering the concessions we asked for.
- Leave Emotions At Home – Good business decisions are made based on facts & data, and what makes current and future sense for your company. When you get too emotionally attached to a space and the landlord knows this you will knot have leverage. Deals fall through all the time so don't get upset if the landlord changes their mind about something or the deal falls through.
- Have 2-3 Options on the Table – Negotiating multiple commercial real estate spaces for lease at the same time creates a competitive environment between landlords. Why would a landlord grant you optimal concessions if they know you are not considering any other options? In a hot market landlords are going to give the space to the first company that signs the lease so have a 2nd or 3rd option to fall back on. If the landlord knows you are seriously considering other options besides theirs you will have more leverage.
- Be Willing to Walk Away – To have leverage the landlord must know you are serious about walking away. If you say it but don't do it then you lose leverage with the landlord. Again this ties back to getting too emotionally attached. You have to believe that what you are doing it right so make sure your opponent knows that you are not bluffing.
- Play Up the Potential Future Success of Your Company – Tell them your business plans and how you plan on growing rapidly over the next few years. If they think there is a chance that you could turn into a big long term tenant then you will have more leverage.
- Create a Business Case For Your Requests – Don't just ask for 2 months of free rent because you heard another tenant got it. Have a business reason why you are asking for that concession and stick to it. Create a business case around it. You could also say that the other building you are considering is offering xxxxx which is why you are leaning that direction unless this building can match or do better.
- Maintain Control – No matter how the opposing negotiator acts you must maintain composure, anger, your environment, etc.
- Seek Perspective – When trying to gain leverage consider each persons perspective of why you're negotiating and what each seeks from it.
- Alter the Other Persons Wants or Needs – Introduce future opportunities about your business. Allude to the possibility of your company growing larger, taking more space, and doing a longer lease term.