By: Scott Pick, Managing Director, JLL
It’s not uncommon for landlords to raise the rent when it comes time to renew your commercial lease. But, you don’t have to just accept your fate and pay more money. Lease renewal time presents an opportunity for companies to assess their current position as a renter, revisit the commercial real estate market and use that information to negotiate a better lease agreement.
For many, negotiation can be tricky and slightly intimidating.
Position yourself as a well-informed tenant armed with market knowledge to secure a better deal and earn back a portion of your occupancy costs.
Here are six helpful tips to consider during your lease renewal:
1. Regularly Stay Informed of Market Conditions
A lease is a significant investment. And in terms of negotiations, it’s beneficial to be proactive rather than reactive. Give yourself the upper hand by doing the following:
- Review your lease on an ongoing basis.
- Approach your landlord months before the expiration date to leave enough room for negotiation talks.
- Monitor the commercial real estate market and take note of fluctuating economic conditions and new development.
The commercial real estate market is dynamic. Coming equipped with the knowledge to leverage your negotiation can help result in a more favorable lease.
2. Understand How Your Landlord’s Profits Work
As you can imagine, landlords enjoy financial benefits when they renew agreements with existing tenants. But, when a tenant leaves, the landlord stands to suffer a loss in rent, as well as incur additional expenses needed to make updates or renovations, and market the vacant space. This presents the opportunity for successful negotiation.
It is important to know the dollar amount associated with keeping you on as a tenant, and leverage that information to help win back a portion of this profit when renewing your lease.
3. Assess What Your Space Can and Should Do for Your Business
Look at your current space and ask yourself, “What does our company need in order to improve efficiencies and create the ideal work environment?” Some items to consider include:
- Amenities for employees
- Optimal office configuration
- Tech-enabled infrastructure
Include these needs as discussion points in the negotiation. In some cases, your landlord may be willing to incur some of the update costs if it means keeping you on as a tenant.
4. Research Alternative Spaces in the Market
Even if you want to renew your current lease, it’s still important to educate yourself on other buildings and owners in the market. You may uncover an alternative solution that is competitive and worth exploring.
For example, market conditions and availabilities may have changed since you signed your last lease. Be on the watch for different contract terms that offer the following benefits:
- Less debt
- Lower taxes
- Desirable amenities
- Competitive rental rates
- Favorable clauses (e.g. subleasing, co-tenancy, etc.)
- Building signage opportunities
Bring these differentiating factors to the table during the negotiation process regardless of your decision to create incentives for your landlord to make you a better offer.
5. Don’t Just Wing It—Develop a Plan
Do not lead into the renewal process giving your landlord the impression that you fully intend to stay in your current space. If they believe the renewal of your lease is guaranteed, this may be used against you in the negotiation process. For example, the building owner could seek less favorable terms, decline your requests or be less inclined to negotiate than if he or she thought you may consider other locations.
Use the aforementioned tips to formulate a plan that puts your company in a position to benefit from an updated lease agreement. Taking a strategic approach will show the building owner that you have done your research and are in a position to negotiate.
6. Consider Hiring a Broker to Help Negotiate Properly
If your company is not familiar with the market and rental negotiations—or doesn’t have someone with the time to properly manage the re-negotiation—you should consider representation through a professional services firm that can help win you the best deal.
Avoid feeling like a captive tenant by hiring a broker to aid in competitive negotiations. Good brokers are always aware of current market conditions and opportunities and can help you leverage this information.
Engage a broker that adds value, not cost, and that will take time to understand your specific situation and business objectives. This is the only way to have a successful negotiation.
Case in Point: One Client’s Story
This came into play with a recent client who was initially apprehensive to employ a broker. The client had already engaged the landlord in lease negotiations but was unhappy with the outcome.
In order to fully understand needs and goals, we sat down and talked business specifics. JLL helped the client to realize that they did not need the originally allotted amount of space. With our help, the client was able to renew the lease about six months early, reaping immediate savings. The client was also able to give back a portion of unneeded space, at a 15% lower rate than originally negotiated.
In cases just like these, it is pivotal to know your value in the market—and for your landlord specifically—and leverage it accordingly.
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We would like to hear about your experience in negotiating a lease renewal. What tactics has your company used that helped you secure a better agreement? Feel free to leave your comments and questions below.
For more information on how you can come out on top in your lease renewal, download our whitepaper, Negotiate To Win. This paper includes more detailed insight and specifics to keep in mind, based on Jones Lang LaSalle’s global knowledge base.
About the Author
As senior vice president, Scott is responsible for driving the tenant representation group, representing corporate clients in Northeast Ohio. He specializes in corporate real estate, tenant representation services, portfolio management and more. View Scott’s full bio.