Below Market Commercial Lease Renewal

March 26th, 2013

Below market commercial lease renewals don’t happen by chance. Commercial tenants aren’t given large quantities of free rent, tenant improvements and/or rental rate reductions because they paid their rent on time or ask nicely. There is a defined process to establish leverage with relocation options, collect information to gain leverage and close a deal that surprises even the best negotiators.

Should I renew my lease or relocate? This choice must be made about every five years by tenants. The line of thinking is often difficult since it will have a material effect on the short term company’s profitability.

Consideration must be given to effective rent, capital expenses, space efficiencies, environment, employee workplace satisfaction, future headcount, hassle factor and time available to commit to a renewal and relocation especially.

Many tenants make the default decision to renew their lease and stay in their existing space. In today’s economy we see an ever increasing percentage of renewals. I understand and agree with this objective 80% of the time. Looking at this fact from the new landlord’s perspective, holding vacant space, we know they must somehow motivate a prospective tenant to move out of a comfortable existing building and to relocate into their building instead. With this understanding, existing landlords will offer generous concessions and aggressive rental structures.

Renegotiating a lease is not limited to tenants who have a year left on the lease. We are evaluating renewals two, and sometimes three, years prior to the lease expiration. The determining factors for tenants are the size of their space, expansion or contraction needs, current rental rate versus market, and the landlord’s willingness to make a deal prior to the end of the lease term. See illustration below where I list the reasons why a landlord would be motivated to complete an early renewal.

Disclosure: Content is general information only. Information is not provided as advice for a specific matter, nor does its publication on this website create any relationship between the writer and the reader. Neither this website nor Forrest Blake is giving commercial real estate advise or soliciting if you are currently represented by another commercial real estate broker, or legal or accounting advice on any subject. Please consult with your real estate broker, attorney or accountant regarding any of the concepts written on this website. This website, Forrest Blake or any of his affiliated companies will not be liable for any actions you take as a result of reading anything contained within.

Please contact me if you would like to use any tenant representation or expert commercial real estate information contained on the site. I promise to get back to you within 24 hours if we don’t connect right away.

Forrest Blake
CA Real Estate License # 01054174
310-850-2381
fblake1000@gmail.com

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Lease Renewals