Five Myths When Renewing Your Lease
When it comes to renewing your office or industrial lease there are many items to consider. Do you need more or less space, or is your current space just right? If the latter, occupiers often believe renewing is the easiest option, but there are other factors they may be overlooking. Below, we share five common myths, and the truths, regarding the renewal process.
Myth one: We have a great relationship with our landlord
or landlord’s broker, they will give me a fair market deal.
The landlord’s objective is to maximize profits and shift economic and non-economic risk to you, the occupier. Many believe that because they have been a good occupier and/or have a good relationship with the landlord, they will receive a fair deal in return. Unfortunately, that is not the case. In actuality, the landlord’s representative has a fiduciary responsibility to protect the landlord’s interests and maximize their profits.
Food for thought: your landlord is in the real estate business and yet they still rely upon professional representation. You should too.
Myth two: I’ll wait to renew when my landlord approaches
The common thought process about renewing (which can often lead to relocating if negotiations fall apart) is it doesn’t take that long. We recommend approaching your landlord a minimum of 12 months in advanced to begin renewal negotiations. Starting this process early insures you have adequate time to prepare, negotiate, and finalize. Waiting until the very end of your lease term gives your landlord the upper hand and may leave you in a bind. If you cannot agree on terms you may be stuck in a less than desirable rental rate, or hastily looking for new options.
Food for thought: Florida, and many other states, allow the landlord to charge up to 200% of your last month’s rent as a holdover penalty.
Myth three: Moving is expensive, I’m not interested in
You are not wrong, moving your business can be expensive, but being stuck with the wrong lease can also be costly. It’s important to take the time to research all your options and evaluate every detail of the lease, not just the rate. You may find a considerably better deal in the market that offsets the cost of the move, OR, you may use this information as leverage in your renewal. Regardless, you will always benefit by expending the effort to determine what’s going on in the market.
Food for thought: Although moving costs can average $5/SF, economics of a new lease can sometimes offset that cost, making it more than worthwhile to move.
Myth four: I already have a lease in place and plan to simply
renew; I don’t need occupier representation.
An occupier representative’s sole objective is to drive the most aggressive economic and non-economic lease deal, regardless of a renewal or relocation. Even if you are only looking to renew, your deal is driven by the current market conditions. The existence of credible leverage delivers the opportunity to improve the occupier’s leasehold position. The moment an occupier requests a proposal to renew without an advisor, the landlord achieves the upper hand in negotiations. Because of this, your impending lease expiration is a great time to shift benefits to your side of the table.
Food for thought: Don’t miss the chance to secure hidden saving and increase risk mitigation.
Myth five: I can handle the renewal process on my own.
I want to save my money.
Hiring an occupier representative is not only in your best interest and at no cost to the occupier but more times than not leads to considerable protections and savings. Brokerage fees are embedded and not additive to your real estate expense. Landlords budget to pay commissions whether an occupier has a broker or not. Engaging a qualified occupier representative doesn’t cost you more and not having a representative won’t make those fees reduce or disappear. The listing broker is incentivized to discourage the use of an occupier representative by making double commission, like in residential real estate. Our goal, as occupier representatives, is to improve your rental terms, rate, square footage, or location as well as several other key, valuable points.
Food for thought: Having a qualified representative on your side you means you can continue to focus on your business, while being assured of seeing all the options and receiving the best outcome.
Visit www.cresa.com/orlando or call 407.648.0330 to learn more about our services and view customer testimonials.