Negotiating Your Industrial Lease Renewal: The Insider’s Strategy
While it may first appear like a nuisance, your lease renewal presents a rare opportunity to secure a better deal, save a chunk of change on your operating costs and better adapt your rented space to the evolving need of your business.
You’re not as powerless as you think and, unlike last time you signed on the dotted line, being informed on matters relating to the real estate marketplace can win you an extremely powerful ticket to the negotiating table.
To put it in real dollars – saving just 50 cents per square foot, on a 4,000 square foot space over a five-year lease would yield an extra $10,000 on that business’s bottom line.
Here’s a few tips to positioning yourself as a well-informed tenant and negotiating a better lease agreement:
- Formulate a plan – It’s never wise to give the impression to your landlord that you absolutely intend to stay in his/her space. Giving such a guarantee will inevitably be used against you in the negotiating process. Always make it clear that you’re actively considering other locations and use this attitude to create a plan that allows your company to benefit from an updated lease agreement. If you come across as having done your research, your landlord will respect the fact that you’re in a strong position from which to negotiate
- Research other industrial spaces – Know your options; your current space isn’t going to be the only one in the immediate area that suits your needs. Don’t be put off by having to move your operation elsewhere (unlike retail tenants, industrial tenants don’t risk an interruption to passing trade) and understand that a building with less tax, better amenities and lower rental costs is one of the healthiest changes you can make. Make a list and keep it safe; you’ll be needing it later in this article
- Be truthful about the suitability of your current space – In the few years since you secured your current lease your company size, required amenities and configuration requirements have likely changed. It’s vital that you ask yourself what is required to create the optimal working environment for both your team and your processes. As above, make a list and keep it to one side
- Understand your landlord’s position – The perfect situation (and the most profitable!) for any landlord is a tenant that simply renews without any adjustments to their current lease. Should you on the other hand leave, they stand to stomach quite a loss. Make sure you know how your tenancy fits into their overall portfolio, the value it plays and what they stand to lose should you move elsewhere. You’re by no means looking to corner your landlord, but don’t be afraid to make it clear that you’re aware of how valuable your business is to them, and the benefits to them working with you during the negotiation process, rather than risk losing you
- Be pro-active – You won’t be doing yourself any favours if you start to think about your renewal negotiation plan three weeks before your required notice date. Plan to start at least a year beforehand, keep abreast of the market and you’ll find opportunities for savings becoming something of a second nature
- The “Grand Finale” – Bring your information to the table! – Don’t try and negotiate your lease via email or text. Invite your landlord into your space (by bringing them into your unit you hold a certain amount of control over proceedings), sit down at the same table and present all of the information you have gathered:
- A list of other suitable properties you’d consider (along with specifics of any tax savings, amenities, etc)
- What changes you’re seeking to the size/layout/condition of your unit, should you choose to renew
- What adjusted (cheaper!) rate you are seeking per square foot, along with why it makes complete sense for it to be honoured (your clued-up image on the market, and the fact you’ve done research on alternative spaces is going to pay dividends here)
- If you’re brave, you can also discuss local vacancy/absorption rates and make it clear to the landlord what the reality will be for him/her, should you vacate
As mentioned all along, it’s about being informed and using this information as ammunition to work with your landlord to formulate an updated lease that is mutually beneficial. Too often the lease itself isn’t given the consideration it deserves and documents are signed before tenants muster up the courage to negotiate terms that work for them.
Of course, another option is to engage the services of a dedicated commercial real estate brokerage who can negotiate for you, properly, as a third party with your best interests at heart. Not only are brokerages always informed on your market’s current trends, but fully versed in using this information as a leveraging tool so you can win, big. Perhaps most importantly, your landlord pays the brokerage’s commission which means you benefit from 100% value, not cost.
So, start thinking today about your next lease – however far in the future it is. You’ve likely got a lot more power than you imagined.
Have any tips to add to the list above? We’d love to hear from you!
James Collins, located in Cushman & Wakefield Atlantic’s Halifax Office, assists clients with all matters relating to industrial sales and leasing. James offers all industrial tenants a free lease review service, providing feedback and market information to assist in formulating a lease renewal plan, with no obligation. Contact him directly at [email protected] or at +1-902-289-0015. Connect with him on LinkedIn, here: http://bit.ly/1PNfhiP.