If you’re in a commercial lease situation and haven’t re-evaluated your lease scenario recently, you probably should.
I chatted with commercial broker Christine Sable of Sable & Associates Inc. about what’s hot right now in commercial real estate. Christine immediately pointed to her activity in “tenant representation” on behalf of clients looking to renegotiate with their landlords and how the commercial market has changed (not surprisingly). Lease rates are coming down, and more concessions being offered all around Central Pennsylvania. It’s a great time to do some homework toward renegotiating your lease terms, even if it isn’t up for renewal yet.
Common commercial lease concessions that can be negotiated are the rent and length of contract, tenant buildouts and improvements, “free rent” periods and future incremental increases in the rate. The CAM fee (common-area maintenance fee) required in larger facilities, such as business parks and shopping centers, generally is not negotiable; but some tenants have successfully negotiated an annual cap on the increases. Other items that can be negotiated are first right of refusal on adjoining space, future renewal options, the right to sublease, and even reserved parking spaces.
It’s good to take a look at each of these pieces when evaluating your lease scenario — where can you make requests of your landlord that will be a benefit to you? Everyone likes a lower rate, of course, but your business might benefit more from a building retrofit or additional warehousing space, for example. Conversely, if you’re been forced to downsize in recent times, you could ask the landlord to reduce the space into a smaller area and correspondingly more-affordable terms.
“There’s almost always opportunities in this lease market” for tenants to make gains, Christine commented, noting the glut of available office and industrial space in the region.
Where annual rent increases of 3 to 5 percent per year once were common, she’s seeing zero to 2 percent increases, with the rent sometimes fixed for the first couple of years.
“It’s a good idea to know what competing properties are available in your area right now and what terms they offer,” at least to be able to bring competitive facts to the renegotiating table, she said.
Even tenants who are loyal to their landlords and happy with their existing space should consider reviewing their leases, because there are definitely opportunities to reduce overhead. Of course, if asking for concessions, it will help to be in a good situation regarding your credit and overall track record.
Regardless of whether a tenant has been in a facility 20 years or two, or even if they are looking for that first lease, the market has changed in their favor and is likely to stay favorable for the foreseeable future. It’s a good time to look into tenant representation to grab some of that “low hanging fruit.”
Jeff Geoghan is a real estate agent and founder of www.yourlancasterhome.com in Lancaster County. He also hosts “YourLancasterHomeTV (tv.yourlancasterhome.com).” He also holds a Green designation from the National Association of Realtors and blogs about homes and green issues.