The end of an office lease represents a significant opportunity to save money, upgrade your workspace, negotiate greater flexibility, and make a positive impact on your bottom line. Unfortunately, many companies don’t take advantage of their chance to secure a better deal.
Like a lot of things, there’s a lot more to renewing an office lease than meets the eye. Based on our extensive experience working with a broad range of office tenants, we’ve identified five typical problems that companies considering a lease renewal will encounter.
1) Don’t go it alone.
Could you negotiate your lease renewal without the help of a broker? Sure. You can also do your own taxes or represent yourself in court, but is that in your company’s best interests? When you sign an office lease, you’re going to lock in occupancy costs and lease rights over several years — as such, doesn’t it make sense to approach such a significant decision with the help of an experienced advisor?
The commercial real estate market can be very confusing, especially if you’re not sure what you want or need when it comes to your office space. You need to be sure to develop an occupancy strategy and present a detailed “apples to apples” financial analysis of all potential workspace options. That can be a lot to tackle on your own but, however you go about it, the approach needs to be detailed and comprehensive.
2) Time matters
Working under the gun is never an enjoyable experience, especially with so much riding on the outcome. Even a small company will need the better part of a year to weigh the pros and cons of renewing vs. relocating. This is because a renewal represents the ability to transform your workspace and enhance your corporate culture, your ability to recruit and retain talent, and your bottom line.
Even if you’re positive that renewing is your best choice, it takes time to develop an effective negotiating strategy through a credible market search. Armed with offers from competing landlords, and with representation with the experience and knowledge to negotiate the best deal for your business, you’ll be able to secure a far superior renewal package.
3) Your landlord knows both his wants, and your needs
In order for any negotiation to be successful, it is critical that you know specifically what you want to get out of the deal.
Do you require more space? Less space? A renovation of a tired workspace, with new carpet and paint? Or more substantial upgrades to your space? How about the ability to downsize or terminate your lease, or the right to expand? More parking? Building signage? Reduced or free rent or a break in annual operating expenses?
The landlord knows down to the penny exactly what they need to get out of the deal. They have calculated the risk of having your firm leave their building, know the downtime cost of backfilling your space, are in talks with other tenants currently in the market for office space, and much more.
You need to understand your landlord’s constraints, a key component of any successful negotiation. And most importantly, you’ll want to have superior market knowledge and a negotiating strategy developed to ensure you get what you need out of the lease renewal process.
4) Your landlord negotiates leases every day
Not only is your landlord an experienced negotiator, he or she knows exactly what they need to effectively argue their position for every clause in the lease document. As such, they have a tremendous advantage in terms of both experience and knowledge.
How can you combat this disadvantage in the negotiation process, and show that you’re serious about your needs and wants as they relate to your workspace?
By hiring a commercial brokerage as your advisor, you are demonstrating to the landlord that you are weighing all your options in the market, including relocation. With the support of an expert advocate, you will have access to better market information, including “real time” data on deals being offered by competing properties, access to hidden market opportunities, and more. The brokerage team can also provide a comprehensive capital stack analysis of your landlord, such as loan data or details about other upcoming expirations in the building that can be leveraged in your favor.
In short, you have an opportunity to enter into the renewal negotiations on a level playing field. Or even better, with a significant advantage that comes from having a dedicated real estate advocate on your side.
5) They won’t pass the savings on to you
It is true that every office building landlord in Atlanta incorporates the cost of brokerage commissions for tenant advisors into their rental rates. It’s also true that tenant advisors are 100% compensated by landlords, and not their tenant clients. What is not true is that, if you don’t have a representing broker, the landlord will pass on that commission to you when you renew your lease. Instead, landlords look at any unused tenant brokerage commissions as “found money” that boosts their bottom line. The reality is that representing yourself on a lease renewal isn’t going to save you anything, and in fact is likely to end up costing your firm money, flexibility, or time — most likely, all three.
An experienced real estate professional, exclusively representing your company’s interests, will help you determine exactly what you need out of your workspace, and then provide the required knowledge and skills to protect your rights as a tenant and ensure you’re only paying fair market value for your workspace.
To download a Cushman & Wakefield infographic that discusses this topic in further detail, click here.