When you near the end of your commercial lease, you may consider renewing and staying in the space. A lease renewal gives you the chance to evaluate your business position as a tenant, examine the current commercial real estate market, and negotiate a better lease agreement.
Here are four tips to help you develop your lease renewal strategy:
You should be familiar with your lease agreement and the parameters of your lease renewal. Proactivity can benefit you during the renewal process, so start negotiating early. If you procrastinate, you may end up stuck in your space with high rent rates because you didn’t have enough time to look for a new location.
Learn about the current conditions of the real estate market by searching online and talking to other tenants. You may find another space that is competitive and worth exploring. You create leverage during the negotiation process when you’re willing to relocate and have options readily available. Here are some specific elements of the market to explore:
Find out how your rent compares to the rates of similar properties in the area. If other locations have lower rates, you can use that as a bargaining chip to decrease your rate.
If the market has high vacancy rates, it means you have options. Your landlord is now at risk of having tenants walk away and will be more likely to make concessions to get you to stay.
New or renovated properties are attractive to tenants. Your landlord will be aware of these options and will be more likely agree to your terms to get you to renew.
As you approach your renewal, you should take a look at your business plan and projections for future growth. You don’t want to be stuck in a space you will quickly outgrow. Consider adding a clause to expand into adjacent suites when your business grows. You may also want to negotiate for a sublet clause, which enables you to transfer interest in the premises while you find a larger location. Another option would be to negotiate a shorter lease with the right to extend. If business doesn’t take off like you anticipated, you will have the option to stay in your current space.
Many tenants forgo hiring a commercial real estate broker for lease renewals. As a result, they miss out on concessions such as lower rent rates, free rent and generous tenant improvement allowances. Brokers are experts on market conditions, current landlord concessions and the negotiation process. We’re confident you will see a return on investment from your decision to hire a commercial real estate broker for your lease renewal.
Coming up on the end of your lease? Contact a member of our tenant and buyer representation team to get started.