So, you are getting near the end of your office lease and considering your options. One of those is to move to a new office location, but that is a lot of work and your current space fits you well. The other option is doing an office lease renewal at your current office lease. Many tenants thin that they can save money doing it themselves. We have found that office tenants typically make two major mistakes when renewal time comes around.
Common Office Lease Renewal Mistakes
The first is folding your cards by asking your landlord for a renewal proposal. By doing this you are indicating two things to your landlord, the first being that you are only considering a renewal and not exploring any competing space and the second is that you have not sought the assistance of a professional tenant representative to educate you on the market. Once a landlord thinks that you are committed to staying and will be going through the renewal process unrepresented, he can and will most likely make you an offer that is not in line with market rates and terms. Both of these pieces of leverage for the landlord can be eliminated by engaging a tenant representative specializing in commercial real estate. While a landlord may tell you this will raise the rental rate, this is simply incorrect, as brokerage fees are already factored into the lease rates and agreed to in advance with the landlords listing broker. Additionally, just letting your landlord know that you have retained representation tells him to
put his best foot forward or risk losing you as a tenant.
The second common mistake made by tenants, is not allowing enough time for the relocation/renewal process as a whole. Leaving too short of a time puts the advantage in the landlord’s hands, as your landlord will realize that you don’t have the time you need to relocate if you don’t like your renewal proposal. Tenants occupying less than 10,000 square feet should begin the process no less than one year out, for spaces larger than 10,000 square feet, up to two years of planning may be required.
You Don’t Need a Tenant Rep for an Office Lease Renewal?
Here are some reasons why you may think you don’t need to engage a commercial real estate professional to represent you in your lease renewal:
“My landlord offered me a $.50 reduction in my lease rate”
While that sounds nice, it is actually quite common for market rates to drop more than the lease rate reduction offer by your landlord.
“My landlord is giving me a great lease rate; I spoke with my neighbor and someone in another building to confirm this”
Whether someone is getting a market deal is not only dependent upon the rate, there are a number of variables that contribute to getting a “market deal”. If you can’t answer the following questions, then you have left the door open for the landlord to take advantage:
- What tenant improvement allowance should you be receiving on a
lease renewal? - Do you know how much free-rent you should be receiving on a lease
renewal? - What should be negotiated on your lease renewal relative to the
operating expense costs? - What is fair for a tenant, in the current office market, with regards to
parking charges, holdover provisions, relocation clauses, options to
renew, and your ability to sublease?
You would never go to court without your attorney or through an IRS audit without your accountant. Why would your company want to make one of its top 3 financial commitments without having proper market knowledge and guidance? Especially when you can have it at
no cost to your company! Whatever you do, even if it isn’t us, make sure you choose and retain a commercial real estate tenant representative to represent you in your office lease decisions.
A guest blog post by our Local Denver Rep.
If you want to avoid making these mistakes, we can help with our network of local office tenant representatives, Contact us today for assistance. No obligation for our No Cost Service.
Great post. Never assume. Don’t be caught off guard without engaging a commercial real estate professional, especially one who does a lot of tenant representation. Let the agent handle the process. And start long before your notice date, not your expiration date. It is much easier to slow down a process than it is to speed it up. A good agent will be able to give the tenant guidance and true market conditions. An overall market could be a landlord’s market and all of the articles in the paper and business journals could be pointing to that. However, there are submarkets that may still be tenant markets and only the CRE professional will know this and how to seek them out. Even if a tenant does not want to move, its important to keep abreast of the submarket they are in. It is also important to use the information from the CRE broker to plan the budget. If your lease comes due during the next year, talk to your CRE broker and get their input. If you are sitting in an overall market with a 10% vacancy but the actual submarket that your space is in is a 2% vacancy with no plans for new spec construction, you might want to get their input regarding rates before you finalize that renewal year budget.