Tips to Negotiate Your Commercial Lease Renewal

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When it comes time to renew your commercial lease the first thing most landlords do is present you a proposal that includes higher rents. What most companies don’t realize is that they don’t have to just accept their fate and simply pay the higher rent. 

As long as you don’t wait until the last minute and give yourself enough time a lease renewal situation is a great time to assess your current situation and future needs, research the current market to see what other options there are and the costs and compare to your current situation, and then use all that information to negotiate a better lease renewal contract.

Negotiating commercial real estate leases can be intimidating and complex. While negotiating commercial lease renewals is somewhat similar to new spaces they also have certain nuances that can put you at a disadvantage, especially if your attempting to go through the process by yourself.

If you do your research and become well informed on current and future market conditions you will get a better deal on your commercial real estate lease renewal.

Whether you are renting office space, retail, or warehouse space below are a few tips that will help you negotiate your next commercial lease renewal.

1. Stay updated on your city’s commercial lease market conditions
   1. The more proactive you are the better the outcome. 
   2. Take the time to review your commercial lease at least once per year
   3. Start commercial lease renewal negotiations with your landlord at least 6-9 months before your lease expires. You want to have plenty of time for discussions AND enough time to relocate if you have to
   4. Keep tabs on the commercial real estate market (rental rates, new construction, etc) and compare those to what you are paying and what your building is currently quoting.
2. Understand the landlords profit
   1. Obviously landlords make more money when renewing an existing tenant vs when doing a deal with a brand new one. When a tenant moves out the landlord could potentially go a few months without collecting rent on that space. Also they may incur additional expenses to release the space such as tenant improvement allowances for renovations, marketing expenses, etc. When you renew your lease the landlord will typically have fewer costs. 
   2. It’s important that you know your value as an existing tenant and leverage that to receive more concessions.
3. Assess your existing situation and current and future space needs
   1. Review your existing space and how it helps you be efficient and productive. How can you improve in those areas? What is the ideal work environment? What amenities would you and your employees like to have? Can you improve upon the overall layout? Can you improve on the technology available to the building and space?
4. Research other commercial space options in the market
   1. Even if you don’t want to move it’s important that you evaluate other options, prices, and amenities. You never know you may find a space that works better!
   2. Market conditions may have changed since you last signed your lease
   3. You might have access to amenities that you don’t currently have in your existing building
   4. Rental rates might be more favorable in other buildings
   5. If there are more favorable amenities and prices in other buildings use those as leverage to negotiate your commercial lease renewal.
5. Have a plan
   1. Even if you don’t want to leave don’t let the landlord know this. Let them know that you are exploring all your options and could potentially move out if another building has more favorable deal points.
   2. Show the landlord that you have done your homework
   3. Present solid reasons why you are asking for better concessions. Base it off market data. Don’t just wing it.
   4. Ask yourself a lot of questions about your commercial real estate needs. What do you like? What do you dislike? What works and what doesn’t?
6. Consider hiring a tenant representation broker to help you with the process
   1. If you are not familiar with market conditions and commercial lease negotiations
   2. If you don’t have the time to deal with it alone
   3. Good tenant representatives can help level the playing field and equip you with the knowledge and experience needed to ensure you negotiate a favorable deal
   4. They will help you fully understand your needs and goals

At the end of the day you want to ensure you give yourself plenty of time to plan your commercial lease renewal. You never know what you may decide after reviewing your current and future business needs. You may determine that you don’t actually need all the space you have and be able to negotiate to give back some of the space thus reducing your overhead. 

It’s important that you understand your value to the commercial real estate market and be able to articulate that to the landlord in a way that will ensure you get the best possible deal. If you need any help with your commercial real estate leases feel free to contact us.

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