Office Lease Renewal Tips

Business owners face an inherent disadvantage during a lease renewal negotiation.  Landlords recognize the disruption that results from a relocation.  They know that, due to the cost of a move, tenants choose to renew their lease 7 out of 10 times.  Landlords negotiate leases every day, while their tenants will be in the market only every 3 to 10 years.  

Following these guidelines will help even the playing field:  

1. Hire a tenant representation broker.  Their presence will enhance your negotiating leverage by demonstrating your desire to consider alternative space options.  Rely on your tenant representation broker's expert advice to evaluate market conditions and introduce competition into the negotiation.  See 3 Common Mistakes Made by Tenants and 4 Advantages to Using a Tenant Representation Broker.   

2. Start the process early. You need enough time to evaluate your alternatives, negotiate your renewal, and relocate to your alternative if the negotiation fails.  Beware that your landlord will interrupt a late start date as an indicator that you have no intention to relocate.  Thus, starting the process late decreases your negotiation leverage.

3. Have the landlord make the first proposal, revealing his position.  Do not accept the first proposal. Do not believe the landlord's assertions that your prior tenure and/or 'relationship' with the landlord has earned you a special deal. Counter with your own proposal, asking for more than you can get.  Make your first proposal at least as far from the objection as the landlord's initial proposal.  Your tenant representation broker will serve as your advocate and guide during negotiations, and help to take emotions out of a business decision.

4. Limit those involved in negotiations to key executives.  Only speak with your tenant representation broker, do not speak directly with the landlord or leasing agent, as this may undermine your negotiating strategy.

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.

Useable Square footage vs. Rentable Square Footage

Commercial office leases are quoted in terms of "Rentable Square Feet", not "Useable Square Feet".  The rentable area of virtually every office includes a portion the common area, for which the tenant is charged rent.   

Useable Square Feet
Simply put, usable square footage means the square feet used directly and exclusively by the tenant. It does not include common area square footage.  Usable square feet includes private (tenant-only) rest rooms, closets, storage and any other areas used only by the tenant.

Rentable Square Feet
Rentable square footage is usable square footage plus a prorata share of the building's common area.  Theoretically, rentable square footage should be the amount of building space from which the tenant benefits.  Most office buildings have common areas not directly and exclusively used by the tenant, but nonetheless benefiting the tenant (e.g., hallways, stairways, lobbies, etc.).  

Business owners should obtain the services of a tenant representation broker to help with translate these and other convoluted definitions into real dollars and cents prices, allowing for an apples-to-apples comparison of alternative properties. 

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 to Lease Office Space

In today's market, the abundance of options can overwhelm business owners leasing office space.  Follow the guide below to structure and simplify the lease process.  


1. Consult with a Office Tenant Representative Broker
A tenant representative brokers will guide you through the process below, contributing expert information and advice.  See the blog posts 4 Advantages to Using a Tenant Representation Broker and 3 Common Mistakes Made by Tenants.


2. Evaluate Your Office Space Needs
Evaluate your office space needs, today and in the years to come.  Determine about the ideal size and layout of your new office. Consider industry standards and the state of your business.  For example, an upscale law firm requires a different floor plan than a call center.  See the blog post, How Much Office Space Do I Need.

3. Determine Your Desired Office Building Location
Weigh the pros and cons of various submarkets.  Do you want to locate in an urban or suburban setting?  Close to a major expressway?  In an office park?  Consider the location of your clients and competitors, and the commute of your employees.

4. Determine Your Leasing Budget

5. Determine Your Parking Needs

6. Tour and Review Properties

7. Select Your Space

8. Sign Your Lease

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.

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. 

4 Advantages to Using a Tenant Representation Broker

1. More data, better analysis, faster results.  A qualified tenant representation broker has access to a complete database of commercial space in your market.  A business that outsources its real estate market research to a tenant rep broker enjoys a more comprehensive analysis while saving time for its employees.
  
2. Expert advice.  A season tenant representation broker provides expert advice backed by market data and years of experience.  This counsel levels the playing field during your negotiations with professional, full time landlords and their brokers.  

3. Real cost savings.  Your tenant representation broker reveals, analyzes, and documents all costs related to your lease, allowing you to execute a lease with peace of mind.  Your broker creates a competitive environment between Landlords to achieve greater buying power for you.  You pay no broker fees, your broker splits a fee with the leasing broker, paid by the landlord.  

4. Peace of mind.  Confidentiality is maintained so that employees do not become alarmed at a possible relocation.  Your broker guides you through a leasing process that gives you the best office space, with the most tenant friendly lease agreement, at the best price possible.

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.

3 Common Mistakes Made by Tenants

1. Relying on a broker with a conflict of interest, who represents both landlords and tenants.

It is best practice for tenants to rely on commercial real estate brokers who primarily represent tenants.  This practice ensures that brokers remain true to their fiduciary duty.  You would not have one attorney representing both parties in a legal matter. When so much is at stake financially and legally, you shouldn't have one broker representing both parties in an office lease transaction.

2. Not developing legitimate alternatives to the first choice in a space search.
The biggest mistake that tenants make is not developing legitimate alternatives to their first choice, whether they are interested in new space or a lease renewal. Brokers often hear, "I don't want to move, and plan to renew my lease for another term." Even if you don't tell your landlord, he will often draw that conclusion from your actions. Once the landlord understands this, a tenant loses his negotiating leverage. Even tenants who have no reason to move must develop alternatives to their current situation. Otherwise they risk spending money needlessly because they have forfeited all leverage in negotiating the terms of their renewal.

3.  Not hiring a broker to help with a lease renewal.
Tenants often say, "We don't want to move and intend to renew our lease. Why would we need a broker?"  Landlords hire professional leasing agents to negotiate the highest returns for the investment in their building. If the agent or landlord can sign a tenant at a higher rate, it improves the landlord's bottom line. The key to a successful renewal negotiation is creating competition between your current landlord and surrounding landlords in the area, while maintaining a controlled and organized process. Tenants need to have an experienced advisor providing the proper market research and negotiating skill that will create leverage for them. Tenant representation brokers can save you significant amounts of time and money on lease renewals.  The right broker will understand that you don't want to damage your relationship with the landlord. He will deal with every landlord in an aggressive, yet fair and professional manner.

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.