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How to Negotiate a Better Lease
Tenants hold the cards in this economy. So don't overpay for your showroom.
If there's any silver lining to our dark economic cloud, it has to be the attractive leasing deals many business tenants are enjoying.
For the first time in many years, tenants are in demand. No one likes to see companies shutter their doors, but the fact remains that for every business that closes some more space comes onto the market.
"Thanks to the current vacancy rates tenants are seeing the biggest selection of space and the most accommodating landlords since the early 1990s," says Robert Bach, chief economist at Grubb & Ellis, a commercial real estate services and investment company based in Santa Ana, Calif. "Landlords are nervous so tenants can get better deals."
All sectors of business are benefiting. In recent months, the nationwide vacancy for retail space has climbed to 9.5 percent, the highest level since the mid-1990s, reports Bach. That's considerably more than the sector's 6 or 7 percent "equilibrium rate" — the rate at which rents increase by no more than inflation.
The vacancy rate for office space has been running at 15.6 percent — the highest since the first quarter of 2005 and a hefty margin over that sector's 12 percent equilibrium rate. About 9.5 percent of industrial space is unoccupied, the highest since the second quarter of 2004 and much more than the sector's 8 percent equilibrium rate.
For anyone grappling with a tough selling climate, all that empty space translates into a stronger negotiating position come lease renewal time. "It is a tenant market right now," says Sharon Kahan, first vice president of CB Richard Ellis, a Chicago-based retail specialty brokerage. "If you are a tenant, you are in a good position. There's quite a lot of space on the market and probably more still coming."
So what steps can you take to capitalize on the favorable market? For starters, dust off your lease and take a fresh look at the numbers, even if the renewal date is still some time down the road.
"Business owners should be seeking relief right now from their landlords," says Andy Fried, director of the Small Business Development Center, Coles College of Business, Kennesaw State University. "If the market is a whole lot lower than what's being paid on a given lease, negotiations should be initiated."
Maybe your first thought is a simple reduction in the monthly rental rate. And while that's not out of the question, another tactic is more likely to bear fruit with the same bottom line results: Free rent for a determined number of months.
For the first time in many years, tenants are in demand. No one likes to see companies shutter their doors, but the fact remains that for every business that closes some more space comes onto the market.
"Thanks to the current vacancy rates tenants are seeing the biggest selection of space and the most accommodating landlords since the early 1990s," says Robert Bach, chief economist at Grubb & Ellis, a commercial real estate services and investment company based in Santa Ana, Calif. "Landlords are nervous so tenants can get better deals."
All sectors of business are benefiting. In recent months, the nationwide vacancy for retail space has climbed to 9.5 percent, the highest level since the mid-1990s, reports Bach. That's considerably more than the sector's 6 or 7 percent "equilibrium rate" — the rate at which rents increase by no more than inflation.
The vacancy rate for office space has been running at 15.6 percent — the highest since the first quarter of 2005 and a hefty margin over that sector's 12 percent equilibrium rate. About 9.5 percent of industrial space is unoccupied, the highest since the second quarter of 2004 and much more than the sector's 8 percent equilibrium rate.
For anyone grappling with a tough selling climate, all that empty space translates into a stronger negotiating position come lease renewal time. "It is a tenant market right now," says Sharon Kahan, first vice president of CB Richard Ellis, a Chicago-based retail specialty brokerage. "If you are a tenant, you are in a good position. There's quite a lot of space on the market and probably more still coming."
Negotiate Rates
So what steps can you take to capitalize on the favorable market? For starters, dust off your lease and take a fresh look at the numbers, even if the renewal date is still some time down the road.
"Business owners should be seeking relief right now from their landlords," says Andy Fried, director of the Small Business Development Center, Coles College of Business, Kennesaw State University. "If the market is a whole lot lower than what's being paid on a given lease, negotiations should be initiated."
Maybe your first thought is a simple reduction in the monthly rental rate. And while that's not out of the question, another tactic is more likely to bear fruit with the same bottom line results: Free rent for a determined number of months.
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