6 Major Benefits for Tenants in a Down Market
Monday, April 26, 2010
It’s no news that the down economy has hurt the commercial leasing market. Indeed—rates have dropped by as much as 30% over the past two years! To combat the losses, landlords are stepping up their games to attract and retain tenants—including lowering lease rates, giving more tenant improvement (TI) dollars—and even free rent!
As a tenant, if you are about to have a lease expire and/or looking for new space, there are many potential benefits coming your way.
We spent some time with Steve Holland and Tim Owens of CBRE in San Diego and Seattle and learned that this aggressive environment is not going away anytime soon. In fact, “2010 and 2011 are going to be good years to relocate your business,” according to Tim.
With Steve and Tim’s help, we put together six ways for you to benefit from the down market.
- Ask for better rates—whether it’s a renewal or a new lease.
In many markets, rates will continue to fall by as much as 10% in 2010 alone. Don’t assume you’re getting a good rate - look around at several options. Arm yourself with this information when negotiating your lease.
- Move to a higher quality space.
Across the board, office space has lowered in price as landlords compete with the influx of space that has come onto the market. So, regardless of the office space your business currently operates in—class A or B—use this time as an opportunity to move to a larger, more efficient location.
- Negotiate for more TI dollars.
You’ve heard the saying, “It doesn’t hurt to ask, right?” This couldn’t be truer when negotiating TI dollars for your lease. Don’t assume that your request ‘sounds crazy’ - ASK! You may not see another time in your business life where these types of requests are honored.
- Explore the flexibility of your lease.
If there are 12-24 months remaining on your lease term, don’t assume your options are limited. Your current landlord may look at performing a ‘blend and extend’ (lowering your lease rate prior to expiration in exchange for signing a longer term lease). A competing landlord may also be willing to assume the back end of the lease if you are willing to commit to a longer term in their building. For the landlord, the cost of acquisition is low compared to what they’ll make over the term of the lease and the value that your occupancy can bring to their building. For your business, it will be a win by getting closer to today’s rates without waiting for the current lease to expire.
- Ask for free rent.
Believe it or not, you could get one to two months of free rent per year on a lease depending on how good your credit is, and the term length you’re willing to commit to. In order to leverage a lease with free rent, you need to understand market conditions, space available in the building, and the motivations of the landlord.
- Engage a broker to help you negotiate the best deal possible.
Today’s market is more fluid that it has been in over a decade. To navigate it properly, you need to be in the daily flow. Working with an experienced broker who knows daily market fluctuations and what they mean for your unique situation is the way to make sure you have all the information needed to make good decisions. In addition, try to find a broker that has transacted deals of your size recently to ensure they have knowledge relating to your specific needs.
Whether or not you’ve considered moving this year, you should at least commit to a review and possible renegotiation. The climate has changed so drastically in the last few years that you can almost certainly improve your space, your terms, or both.
About CBRE
For seven years running, CBRE has been ranked as the #1 brokerage firm by National Real Estate Investor. With offices all over the world and probably one in your backyard, CBRE is a great broker option for your needs.
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