Commercial Real Estate Lease Negotiation Tips

One of the greatest values a tenant representation broker can provide to his client is advice during the lease negotiation with a landlord.  A professional landlord negotiates leases every day, with the help of a leasing broker and an attorney.  The tenant, who rarely participates in the market, should even the playing field by enlisting the services of his own advisers.  Remember, hiring a tenant representative broker doesn't cost you money, but it can save you money.

Below are best practice guidelines for commercial real estate lease negotiations.  Please consider these tactics early in your space search process.  

1. Develop Realistic Alternatives to Create a Competitive Environment

Many tenants do not develop legitimate alternatives to their first choice. If a landlord believes you’re not willing to switch to a different property, you lose your negotiating leverage.  Tenants often make this mistake in a lease renewal scenario; their landlord does not believe they are ready, willing, and able to walk away. The key to a successful negotiation is creating competition between your current landlord and other landlords in the area.

2. Start the Process Early

Landlords know that the managers of other buildings can take six to eight months to create a space plan, get construction pricing, agree on a rental rate, prepare a lease document and ready the space for occupancy.  If a tenant waits too long before asking for a renewal proposal, he signals to the landlord that he's not developing realistic alternatives, reducing his leverage in the negotiation.  Landlords will drag out the process of a renewal in an attempt to limit the tenant's alternatives and reduce the tenant's negotiating leverage.

3. Knowledge is Power 

A quality tenant representation broker can provide valuable knowledge to inform your position in a negotiation. Your broker should be able to answer the following questions:
Is the office building being sold? 
Is the largest tenant moving out? 
How much free rent did the last tenant get? 
Does the building have HVAC or parking problems? 
What is the landlord’s financial situation? 

Your tenant representation broker should also analyze the market to provide a true “apples to apples” comparison of different facility choices.  Lease terms such as full service gross, modified gross, triple net, tenant improvement allowances, rental abatement, escalations, base years, operating expense stops and loss and load factors can obscure the true amount you’re paying and make legitimate comparisons difficult.  A good tenant representative will sort through all this for you.

Troy Golden is President of Golden Group Real Estate. He received his undergraduate degree from Yale University and his MBA in Real Estate from the Wisconsin School of Business. Troy specializes in commercial office brokerage in Chicagoland. Please contact him at troy@goldengroupcre.com or (630) 805-2463.

l Estate at www.scgroupco.com. 

Direct Lease vs. Sublease of Commercial Office Space

Direct Leasing vs. Subleasing
Business owners who wish to lease commercial office space may either lease space directly from the landlord or sublease space from another tenant.  Decision makers should review the advantages and disadvantages of both options.  The best option depends on the state of the business, market conditions, and lease terms.  Enlist the help of a qualified tenant representation broker to help you make the right decision.

Subleasing
A sublease arrangement is a lease transaction with a current tenant, subject to the approval of the landlord.  Businesses who sublease space typically benefit from below-market rents and lower buildout costs.  Sublease terms can be more flexible than direct lease terms.  Sublease arrangements may run month-to-month, or include special ad-hoc provisions.  However, businesses subleasing space end up having two defacto landlords, the original tenant and the building landlord, with twice as many restrictions.

Direct Leasing
A direct lease is a contract between two parties, the tenant and the landlord.  Direct leases are simpler than sublease arrangements.  With fewer parties involved, there is less chance for confusion of responsibilities or missing payments.  The landlord knows who is paying rent, and knows who to go to when a payment is late. The tenant knows who is responsible for common area maintenance, and knows who to go to when an elevator is broken.  However, professional landlords tend to be less flexible in negotiating direct lease contracts than most tenants are in negotiating sublease contracts.

Troy Golden is President of Golden Group Real Estate. He received his undergraduate degree from Yale University and his MBA in Real Estate from the Wisconsin School of Business. Troy specializes in commercial office brokerage in Chicagoland. Please contact him at troy@goldengroupcre.com or (630) 805-2463.

How Much Office Space Do I Need?

One of the first steps in the leasing process is to estimate how much office space your business requires.  An experienced tenant representation broker will seek to understand your business needs and want, asking these questions in your first encounter: 

-What do you do?
-How do you work?
-What space can be shared?  What space can be eliminated? 

An architect can help you decide the layout for your new space.  Most landlords provide professional space planning services at no cost to the tenant.

In general, most businesses need 250 square feet of office space per employee.  However, the amount and configuration of space varies widely from office to office.  Below are some common categories of space and their space requirements.  Use these standards when estimating how much office space your business needs.

How Much Office Space Do I Need?

Category	Dimensions	Total Sq Ft
Private Office, Very Large	20x15	300
Private Office, Large	15x15	225
Private Office, Medium	15x10	150
Private Office, Small	12x10	120
Workstation, Large	9x9	81
Workstation, Medium	8x6	42
Workstation, Small	6x6	36
Reception Area, Large	25x15	375
Reception Area, Small	20x15	300
Conference Room, Large (12-24 Seats)	25x15	375
Conference Room, Medium (8-14 Seats)	20x15	300
Conference Room, Small (4-6 Seats)	10x10	100
Kitchen, Large	20x15	300
Kitchen, Small	10x8	80
Copy Room	15x10	150
Telecom Room	10x8	80
Closet	7x4	28

Troy Golden is President of Golden Group Real Estate. He received his undergraduate degree from Yale University and his MBA in Real Estate from the Wisconsin School of Business. Troy specializes in commercial office brokerage in Chicagoland. Please contact him at troy@goldengroupcre.com or (630) 805-2463.