Lease renewals are more common than you might think– in fact, they tend to happen 70 percent of the time. While tenants may be excited that they have avoided the cost and trouble of relocating, landlords are often just as pleased… and likely expecting the renewal to take place. Given this imbalanced dynamic and the fact that renewals are actually more complicated than one might think, you and your company should formulate a real strategy when renewal time approaches.
Create a financial model
Build a financial analysis that takes into account all the costs and risk involved in leaving your current space for another. Look at the current rent trends in your area, and also consider any credit risk, lost income, or tenant improvements that may be necessary at a new space. Use this analysis throughout your search and review process and also, potentially, in negotiations with the landlord as leverage.
Run a thorough search for new spaces
Don’t just pay lip service to the idea that you are looking at other spaces in the hopes of getting your landlord’s back up. You will need to run a thorough and credible search of market options. The market is, at least in the immediate future, still tenant-friendly and your current landlord should never feel as if he has an offer on the table you cannot find elsewhere.
Bring a broker on to your team
The reason that many landlords feel they have an advantage in renewals is not just because they believe in tenant stagnation, but because they believe that they know the marketplace better than a tenant. Running your search for other spaces can help ameliorate this, but bringing a tenant broker on to your team can cause an even bigger impact. With a real estate professional on your side, a landlord will understand that you are making informed decisions and take you more seriously in negotiations.
Understand the key factors in a renewal
There are four key factors which can make or break your renewal strategy. These include:
- Know your landlord’s goals and limits – Look carefully into your current building’s situation, including the number of spaces filled and any building debts.
- Know your lease provisions – Learn the provisions of your current lease back and forth before beginning renewal talks and review them all with your team. Look for which can be used in your favor and which you will need to guard against.
- Start early – Don’t leave a renewal negotiation until too late. You need to time it so that you have the option of developing a renewal outside of the renewal rights of the original lease.
- Know what you want out of it – Have a very clear idea of the rent target range you want to hit before entering into negotiations. This level of certainty will let your landlord know that you’re serious, and potentially increase his respect for you.
Senior Vice President at Colliers International, based in Houston, Texas.