If your lease is approaching its expiration within the next 12 to 18 months, you should be having discussions with your leadership team about whether or not your company wants to stay in its current location. It’s likely you have two options: Either renew and negotiate your lease, or seek other locations and end your current lease upon expiration.
What your company decides to do ultimately depends on your company’s financial situation, as well as your operations and unique culture. While there is no one-size-fits-all approach, there are certain factors companies should consider when approaching their lease expiration, which are all detailed below.
Considering Your Options
While the current economic environment has led to many of us to hold off on major decision-making, when it comes to expiring lease terms, you simply don’t have the luxury to put it off. The best approach to major decision-making is working with a trusted tenant representative who can help you evaluate your assets, research and analyze your options, and develop a strategic real estate plan for the future of your company.
As a bonus, when you partner with a trusted advisor, you automatically have the upper hand when discussing options with your landlord. When you approach the process with a hired real estate professional, your landlord might be more likely to take your requests seriously, considering there’s a real possibility of you finding other options in the market. Your real estate advisor will also equip you with market trends and data to leverage during negotiation. And who knows? You might find a compelling opportunity in the market that you would miss if you simply renewed.
Once you’ve consulted with and selected a real estate partner to assist you through the tenant representation process, the following are the most important considerations to address when preparing to negotiate your lease.
Want to renew? Here are the top factors to discuss.
If you’re satisfied with your company’s current location and operations, you may be willing to renew or extend your lease and stay put. Oftentimes, the renewal option notice period is anywhere from six to nine months, meaning that you’ll need to be proactive in your decision making. Here are the most important considerations to address when preparing to negotiate your lease.
- Secure rental rates. The negotiation and renewal process is your opportunity to address the building’s rental rates compared to the market. Determining the rental rate is a process that requires deep process knowledge and extensive market research if you want to arrive at favorable rates. The final rental rate is an agreed-upon number between the landlord and the tenant and is decided, in part, based on how similar buildings throughout the market are priced.
- Negotiate lease incentives. If you’re committed to staying in your current lease, there are also incentives you could negotiate for, or that a trusted real estate advisor could negotiate for on your behalf. For example, if your office space is in need of renovation, the renewal negotiation process is your chance to demand a tenant improvement allowance to refresh your space. Other lease incentives that can be obtained during renewal discussions include free rent, building amenity upgrades and more.
- Save resources. Let’s face it, 2020 has led just about everyone to be a little more frugal with spending, and there’s a large financial cost and time spent associated with moving. According to ProMove, moves can cost employers up to $250 per employee. This number might include physical office furniture and other customizations. One benefit however, is that moving allows you to get rid of dust-gathering items in the office and free up space for more valuable office items.
Seeking alternative options? Consider the following first.
If you’re not sure about renewing or extending your current lease, perhaps relocating is the best option. Here are several reasons why you might want to browse the market and consider your options.
- Missing out on new fitouts. Yes, fear of missing out is a thing in real estate, too. While you may have enjoyed the past several years in your current location, there likely have been improvements in technology and furniture systems elsewhere. Staying at your current location might mean missing out on these valuable features. By relocating, it’s also an opportunity to clean up or digitize paper files and dispose of old, unwanted stuff.
- A change in times calls for change in location. Companies across the globe are rethinking business operations, starting with more virtual operations. If you’re considering moving your office, be sure to determine your real estate strategy and goals. Moving forward, does your company want to be closer to clients? Is your client base local or do they travel in from out of town? Where do your current employees live? What labor markets do you want to tap into? These factors can influence the physical location of your office space.
- Disagreements with landlords. There may be certain cases where you and your landlord are not able to agree on certain terms of your lease or resolve past disputes. In this case, a real estate professional may be able to help you reach an agreement. In the case that no agreement can be reached, this may push your organization to relocate.
When considering relocation, take into account any expenses or time spent physically moving. If you’re relocating for financial reasons, factor costs of furnishing a whole new space, and the opportunity costs potentially lost for pausing business for the duration of your move. Your real estate advisor can help you account for these factors and accurately project the total involved costs.
Ready To Evaluate Your Real Estate Needs?
There’s a lot to think about as you strategize your real estate portfolio in the future. If you’re approaching your lease expiration or just want to strategize your current and future needs, Allegro Realty is here to help guide the way.
Download our free guide, Corporate Real Estate Portfolio Strategy: Your Business’ Competitive Advantage, to help you through your asset evaluation today.