Real Estate Negotiating
Negotiating a commercial real estate lease can be difficult, but knowing how to approach it helps prevent any negative repercussions for your company in the future. Prior to negotiating, it is important to first evaluate your needs, costs, and lease options. Researching market rents and comparable properties are important before negotiating tenant improvements, and rent structure.
By evaluating your current and expected future space demands, you can negotiate for your company’s specific needs. Do you have plans to increase your workforce? Or do you need to find a space that lowers cost for the interim during an economic downturn?
Assess Your Lease Options Based on Business Needs
Assessing your business needs is essential before you enter into a lease negotiation. Your business structure, nature of your business, or your length of time in business might factor into your negotiations. Landlords are more inclined to negotiate or lease to a notable cause or a company with future growth projections. If you are in a place of long-term expansion, use that in your negotiations to get a better price per square foot. If you are uncertain about your short-term needs, consider a two- or three- year lease to give you the flexibility to explore your options.
Lease Options For Negotiating
Based on the type of lease you sign, your costs can vary greatly. Do your research on different lease options available. Here are some common rent structures to consider:
- Gross Rent Lease – Tenant pays a single monthly amount to the landlord covering base rent and all incidentals
- Modified Gross Lease – Tenant and landlord share some combination of incidental costs based on the property
- Net Leases – Tenant can pay some incidentals directly resulting in lower rent
- Percentage Rent Lease – Tenant pays base rent plus a percentage of your gross sales over a time period. This is more common in retail settings such as malls or multi-tenant retail locations
Educating yourself on leases for other buildings will only make you more knowledgeable in your real estate negotiations. Whether you intend to stay at your current building or move, your research only gives you a better understanding of what options are available. You may uncover a competitive, alternative solution that is worth exploring.
Here are a list of things to look at during your market research:
- Check market rents in the neighborhood and compare
- Look at the buildings tenant mix to make sure they are compatible with yours
- Find out what the building’s traffic is like for foot traffic
- Research the landlords reputation for red flags
- Evaluate the condition of the property for repairs or improvements
In your research on a new property you can find certain things that might be handy in your property negotiations. The landlord may be open to negotiations if the space has been vacant for a while. Maybe there is space available to sublet to help cover your rent.
Here is a list of conditions that can make negotiations easier.
- Review termination conditions in case your sale decline or you want to expand to a bigger space
- Look at your sublease clauses to evaluate opportunities to pay rent and avoid a hefty termination penalty
- Negotiate common area maintenance fee increases by writing in a “cap” in your lease agreement
- Set your occupancy date to take physical possession of the property before your rent date
Consider Hiring Plaza Companies
If your company is not familiar with the market or rental negotiations, hiring an expert can help you win the best deal when negotiating real estate leases. When you work with Plaza Companies, you are working with a highly recognized and admired company in Arizona. Learn more about our brokerage services by contacting us today!