Commercial lease renewal negotiations are critical when it comes to extending your office lease. Your commercial lease renewal timeline is even longer if you need to find brand new space or conduct a build to suit. Let’s face it, it can be tricky if you don’t know exactly how to go about it! You need to make sure you have plenty of time to evaluate all of your options. This will ensure you are making sound business decisions. And after spending time doing your due diligence, you may just find it’s best to start searching for a new space and start from scratch!
Below we’ll discuss why it’s important to start preparations for your commercial lease renewal early. Specifically when to get the ball rolling before your commercial lease is set to expire.
Procrastination Is Not Your Friend During a Commercial Lease Renewal
It’s never recommended to wait until the last minute to negotiate your commercial lease renewal, or to search for new office space! According to 42Floors.com, industry experts say that for a space under 10,000 square feet, tenants should start searching a minimum of 6-9 months ahead of time. You never know how long it might take you to find the right property or to finalize your commercial lease renewal. It’s best to be proactive!
If you approach your landlord two months prior to your commercial lease being up, you don’t leave yourself leverage to negotiate better terms during your commercial lease renewal. The landlord will know that you suddenly have minimal time to find something else if the deal goes south. Make sure you know your options. Familiarize yourself with what is going on in the market and allow plenty of time to negotiate those commercial lease renewal terms! It’s always in your best interest to evaluate your lease agreement on an ongoing basis. Request a commercial lease analysis from Lighthouse CRE now. This is something you should review at least once a year. You will be ready to take advantage of market conditions if you are well informed.
Instead of a Commercial Lease Renewal, Will You Need New Space?
If you will be moving into a new space, you also need to think about if the space would need any remodeling or construction to fit your needs. You may need to wait for other tenants to vacate the space you will be taking over. You will likely need time to remodel the space for your needs if you are replacing another tenants look and feel.
If you’re looking for space over 10,000 square feet, you should start the process at least 12 months before your current lease expires. The larger you are, the more complicated the process, so keep that in mind!
What happens if you wait too long? Options may be minimal. You may end up settling for the best available, rather than the best possible fit. It can also end up costing you much more when you procrastinate. You will lose leverage and will be forced to make decisions without fully vetting your options. This could ultimately result in financial loss.
Clarify Your Objectives
Before you look at new spaces or renegotiate your lease, you need to clarify your business’s objectives. Without specific goals, your office space may not end up meeting the needs that you have for your company.
Things like image, layout, breakdown of office space and budget are all critical to think about. Are you sure about the specific amount of space you need? Also, for some businesses, location is more important than others.
Make sure you go over what you can realistically afford to pay for space. That will help you narrow down which sites to look at from the beginning. There is no point at looking for space that is over your budget. As a rule of thumb, for retail businesses, you can expect to pay 10-15% of your projected gross sales on rent and operating expenses.
If you are thinking of relocating your business, this list of objectives may be a little different. Are you sure you know why you are even moving? While it may seem like a given, making sure you’re clear on it will help you focus on exactly what you want and need in a new space.
Understand Your Needs During Your Commercial Lease Renewal
What is your least favorite thing about your current location, as well as your favorite? This will help you search for properties in specific categories that you may be looking for. Perhaps your least favorite thing was your landlord and your favorite thing was being on the ground floor. This will help you find the perfect space for your business.
Now would be a great time to call in the reinforcements of your business to develop a space plan that considers layout, growth and any special details that your business may need. Don’t search for a new space before knowing exactly what you need. You’ll end up stuck with the wrong type of office space for your business, which will cost you more money in the end.
Bring the Right People Onboard
We all know that the landlord is in the business to make money. Yours is to move your business forward. Therefore, the landlord can have the edge many times that benefit themselves over you. This is why it’s important to have a tenant focused broker. You want an expert to find the perfect property or negotiate a fair lease for you, not the landlord.
Experienced tenant representatives, or tenant reps, will provide detailed comparison and analysis of each space you may be interested in. They can also help for where you are currently looking to renew. They should be equipping you in the best way possible to help you make the best decision for your company.
Brokers can save you time and money (they are oftentimes paid by the landlord or listing broker). They can provide the necessary information you need such as demographics, trends, and other items that will help you select the perfect office location! If you’re not familiar with lease negotiations and the real estate market, this will be vital!
Good brokers are always aware of market conditions and opportunities in the area. And most of all, they can help you make the most of this information! You may think that rents can only go up, but in some cases, tenants may be in line for a rent reduction! Tenants, however, may not be aware of how to handle these types of negotiations, so it’s always best to use a broker to make sure you are not giving money away.
Unexpected economic circumstances may show up on your doorstep that may help you negotiate a lease early with your landlord. You always want to make sure you are staying in the loop of real estate trends and make sure you know of the opportunities that would work in your favor or against it! One of the simplest and most powerful actions you can take right now is requesting a commercial lease analysis from Lighthouse Commercial Real Estate. We will examine your lease, compare it to market conditions, and find ways to save you money and get the best space possible for your business.
How are Market Rents And Vacancies?
Do you know how your rent compares to similar spaces in your area? Are there other close by areas that you can check out for a possible alternative? If rent is lower in similar spaces, you may use that as a bargaining chip. However, if rent is higher, you will want to start negotiating for a renewal at your current rent as fast as you can. You don’t want your landlord changing the terms. This is when time is your friend!
In the same vein, you will also want to see how many spaces in your area are vacant, as well. If it’s high, you have options because it puts your landlord at a larger risk of having tenants walk away. The sooner you start these types of analysis, the earlier you’ll be able to agree to a fair deal that will work for both parties.
Even if you’re positive you will be renewing your current lease, it’s always good to investigate other facilities and landlords in the market. You never know. You may find an option that is worth exploring, if not now, in the future!
Financial Incentives to Renew Your Lease Early
It may be in your best interest to focus on your commercial lease renewal early, in order to lock in your rental rate. If you are in a competitive market that isn’t slowing down, you may want to lock in those current rates. You don’t want to be stuck with future rates that will likely be higher. This way, your business won’t be faced with higher market rates years down the road.
By renewing early, you may also have the leverage to negotiate the tenant improvement allowance you could use. This is money from the landlord that you can use to renovate your space! This will give you more opportunity to improve your office space to better fit your business. It’s possible you can do this without having to worry about it coming out of your own pocket.
Even if you don’t need a major remodel, you can often times ask for some free rent at renewal time. Think of it this way, if you leave, your space will likely be empty for a few months. Oftentimes, new tenants get a month of rent for free. Why shouldn’t you?
Knowledge is power, they say! This is definitely true during your commercial lease renewal negotiation, as well. Starting the process early ensures you will have the office space that truly fits your needs, objectives and budget. Remember, you can request a free commercial lease analysis anytime from Lighthouse CRE and we’ll give you the road map you need to maximize success.
About Lighthouse Commercial Real Estate
Did you know Lighthouse Commercial Real Estate offers commercial real estate agent matchmaking services? If you have a commercial real estate agent need, visit Lighthouse Commercial Real Estate and request a free initial consultation. We will answer any questions you could possibly have about commercial real estate. Once we understand your commercial real estate needs, we’ll provide you with the guidance you need to choose the top commercial real estate agent for your needs. Contact Lighthouse Commercial Real Estate today!
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David Haug is a Madison WI commercial real estate agent. He is passionate about helping clients, customers, and friends succeed in commercial real estate. He is also a raging Badger fan. #OnWisconsin Baby!
Connect with David on LinkedIn: https://www.linkedin.com/in/davidnhaug/
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