In a typical year, a high percentage of office tenants – between 60% and 70% – will renew their existing office leases rather than relocate. This is especially true in the current economic climate. There are many reasons NOT to relocate: it’s a headache and adds stress to key personnel, it can be disruptive to key business operations, it’s expensive – often triggering updates to computer, phone and furniture infrastructure – and the current location may work well for employees and clients.
Commercial landlords understand these dynamics and use all the negative factors associated with relocating to their great advantage. Consequently, in most cases, landlords will offer better economic terms to new tenants moving to their building than to renewing tenants. These better economics may come in the form of lower rents, significantly higher tenant finish allowances and even free rent.
Why do existing tenants who are already in the building faithfully paying rent – often for years – get offered a worse deal than new tenants? It’s simple: landlords need to compete aggressively for the new tenants, but consider their existing tenants as a semi-captive market.
Check out the sample economics presented in the chart below. This is a hypothetical example, based upon our experience with numerous lease renewal transactions.
Understanding the dynamics of the lease renewal process from your landlord’s perspective is crucial – you don’t want to leave money on the table!
Then the work begins, step by step, to create the leverage you need to achieve a great lease rate, tenant finish work (paint, carpet, remodeling, as necessary), and more desirable lease terms (expansion, renewal or termination options, the desired length of term, etc.).
In our next Bulletin, we present 10 Key Steps to create and maintain leverage throughout the process to help you get the most out of your lease renewal.
Guidance Corporate Realty Advisors
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Guidance Corporate Realty Advisors provides corporate tenant / buyer representation services to corporate real estate users in the Denver metropolitan area including Boulder, Colorado. Guidance also provides these services in all major U. S. markets, as well as markets in Canada, Asia, South and Central America, and Europe.