#2: WHEN TO BEGIN LEASE RENEWAL NEGOTIATIONS
"Time and I against any two" - Baltasar Gracian
Research has shown that renewal lease rates offered to existing tenants by landlords are from 6% to as much
as 41% higher than rates offered to
prospective new tenants. There's a simple reason why.
Most tenants forget, or put off renewal negotiations on their office leases until too late, and end up with no options. So landlords treat renewal
tenants as a captive market.
Prospective new tenants are shopping the market. Landlords must be very competitive to attract them. On the other hand, renewal tenants who wait
late receive the most inferior offers by landlords, because landlords know these tenants probably have not researched the market, and they no longer
have the time to consider options.
Put time on your side
Landlords know that renewal tenants usually want to avoid the expense and disruption of an office move. If you put yourself in that position, you
will have no negotiating chips. You must put time on your side, not the landlord's, if you expect to be able
to negotiate the most favorable terms.
You should begin negotiating lease renewal no less than 12 months before your current lease expires. If you lease 20,000 sq. ft. or more you should
begin 18 months before expiration. There are several reasons.
First, this gives you the time to investigate the market and identify options to your current location. You have time to get competitive offers,
and compare them to the renewal offer from your current landlord. You have time to negotiate with other landlords, and you have time to walk away
from a bad renewal offer.
Losing you would be costly to landlord
You'll have the time to use your knowledge of your current building and its operations to your advantage in renewal negotiations. Last, but certainly
not least, you can make your landlord aware that you have provided the time to investigate other offers, and that you no longer are a captive tenant.
It is costly for any landlord to lose a tenant. It is unlikely that he will fill the vacant space immediately, so he will face loss of income.
Further, he may have to negotiate aggressively with new tenant prospects, costing
further loss of revenue. Finally, it will be costly for him to renovate your vacated space for a new tenant.
So, from 12 to 18 months prior to expiration of your lease you should begin. First, retain an
office tenant-exclusive real estate representative. One who
represents no office landlords at all, therefore has no conflicts. His knowledge of the market will make it quick and easy for you to develop competitive
options.
Put yourself in the driver's seat
He will combine his market experience and knowledge with your experience in your current building to guide your negotiations for renewal. The result
will be competitive options for you, including the best possible renewal terms.
The landlord budgets in your rent an amount for brokerage commissions. Since you're paying for it, you should see to it that at least some of this
money works for you, rather than going 100% to the landlord's broker whose interests are the landlords, not yours.
MalmoMemphis Real Estate is an office tenant-exclusive representative
firm. Our experience and knowledge, and our freedom from conflicts of any kind put you in the driver's seat in any
lease.
The 'Tenant's 10-Point Guide to Leasing Commercial
Space' is copyrighted by MalmoMemphis Real Estate, Inc., (MMRE) and may
not be reproduced without the expressed written consent of MMRE, and the
inclusion of notice that the material is 'Copyrighted by MalmoMemphis Real
Estate, Inc.' |
