Statistics show that 70% of the time office tenants end up renewing their office lease. In a lot of cases they are excited about renewing since they did not have to go through the cost and hassle of relocating, however landlords are just as excited. Landlords expect renewals to happen and in most cases the transaction is imbalanced and in favor of the landlord. If negotiated properly office lease renewals are more complicated than you think so it's important that tenants create a strategy at least 6-12 months before the lease expires (or when your lease dictates).
Create a Financial Analysis
Create a financial analysis that considers all of the costs and risks associated with your existing lease situation AND in relocating your office. Thoroughly research the market (trends in rent, vacancy rate, tenant concession, etc.). Also take into consideration the costs of downtime and lost income due to relocating. Use this financial analysis to compare to other alternatives as you search for and negotiate space.
Search for New Office Space
Don't just pretend to search for new office space. Actually get out there and look at the alternatives as you don't want to let the landlord know that his is the only option out there. The more leverage you create the better deal you will get in the end.
Hire a Commercial Real Estate Advisor
Most landlords feel that they have an advantage in office lease renewal negotiations because they know the market better than most tenants. They hire listing agents and attorneys to advise them and keep them update on market trends. When you bring on a commercial real estate advisor that specializes in ONLY representing tenants landlords take you more seriously and know that you have the experience, tools, and resources on your side to enable you to make better informed decisions.
4 Key Factors to Consider in Office Lease Renewals
- Start your lease renewal review process at least 6-12 months before your lease expires. Look at your existing lease and determine what is the earliest that you can begin discussions. You want to have plenty of time to review all your options including your existing location.
- Thoroughly review your existing lease and get to know all the key points you negotiated originally. Review these deal points with your team including your commercial real estate advisor and determine which ones you can use as leverage in negotiations and which ones you need to protect.
- Get to know your existing building and landlords current and future situation. What is the vacancy rate and current asking rental rates? Do they have debt? Are they planning on selling the building? What kind of deals are they actually getting in other tenant transactions?
- Know what your ideal outcome is before getting started. Have some clear set goals on your ideal monthly/yearly rent before starting negotiations. The more you know your business needs the more respect you will have from the landlord. They will also take you more seriously.