Your lease renewal is Worth A LOT!
A lease renewal is seen as the path of least resistance for many companies, as it removes the potential disruptions associated with a move, from a change of address to the associated costs, and everything in between. It is important to remember that it is the best option for your landlord in many cases. For this reason, you should use this to your advantage when considering options for your company’s real estate. Let’s discuss why you have the upper hand in your renewal, and how your real estate advisor can help you negotiate accordingly.
To demonstrate why your renewal is so valuable to your landlord, let us look at what happens if you do not renew and decide instead to relocate:
If you decide to relocate, you leave a vacant space in its place. This will have to be released, and that will take TIME. TIME = lost rent because every month the landlord’s space is vacant is a month that they are not collecting rent on that space.
Building Operating Expenses
Whether space is occupied or not, there are expenses associated with running a building. A vacant space means the landlord, rather than a tenant, is paying for those costs.
Money For a Facelift
It’s expected, in most cases, that when you lease space, you have a fresh coat of paint, new carpeting (when it’s not polished concrete), up to date lights, broken ceiling tiles replaced, or perhaps even modifications like adding or reducing offices and moving some walls, or even having to providing a new installation. All of this equals $$$ out of pocket for the landlord, aka initial capital costs for them.
Transaction Costs Associated With a New Lease
With a new tenant comes free rent. Free rent means no initial rent collection for the Landlord. And since cash flow is one of the two main goals of a landlord (that and appreciation), a ton of free rent upfront makes it difficult for the landlord who has a building to run.
Risks associated With a New Tenant
The landlord does not really know whom they are getting. Is it a company that pays rent on time? Do they treat the building with respect? Are they disruptive to the other businesses in the building? A new tenant is an unknown. It is a lot different from you, who has most likely paid rent on time and been a “good tenant.”
Now that we can see some of the expenses associated with a newly vacant space, you can better understand that your landlord really doesn’t want you to relocate. Tenants that renew make landlords happy. So that happiness is worth something and why I maintain it is an ADVANTAGE for the tenant when the conversation turns to renewal or relocation. Your renewal saves your landlord a ton of dough, and this, in turn, should be passed through to you in the form of reduced rent and other concessions. And, having a real estate advisor helps you leverage the market to communicate the competitive market to your landlord, thus ensuring maximum cost savings for your next lease.