To Renew Your Commercial Lease or Relocate? The Analysis

April 7, 2022
|
Commercial Real Estate

Author

Jeremy Dukes
Jeremy Dukes
Director

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As you approach the end of your lease term, you will need to evaluate whether to stay and renew your commercial lease or relocate after negotiating a lease for a new space.

Staying put could mean savings in terms of fit-out and relocations costs. It may also mean you're not inconveniencing staff or clients/customers with a change of address.

But relocation, for instance, could mean better quality premises, location and rent savings allowing you to foster team culture and adapt to a new working environment.

There are several steps involved when undertaking what we call a ‘Stay vs Go’ analysis. And evaluating the best solution for your business. To help, we’ve shared this process with you below through 9 key steps.

1. Align your business and real estate goals

Does your premises meet the future needs and growth of your business? Ensure that your real estate decisions align with your business plan.

2. Determine space requirements

How much space is enough? An architectural or design firm can help develop an overall program of your space requirements for an existing or new space.

3. Evaluate renewal options

Using aesthetic, quantitative, and qualitative criteria, evaluate whether renewing is a viable option. Is it possible to expand if you reconfigure the existing space?

4. Select a suitable relocation option

Research the market for a new space that will suit your criteria and overall business needs. When comparing options, consider lease term, option to renew, rent calculation, incentives, all fees, outgoings, landlord and property maintenance, existing fit-out/furniture, building facilities, local amenity, and transport options for employees.

5. Calculate landlord’s costs

Evaluate what your landlord will face if you move out – potential downtime, transaction costs like construction and tenant fit-out, rent concessions and commissions. This will allow you to negotiate better terms if you stay and renew your commercial lease.

6. Calculate potential savings by renewing

Calculate the savings you would achieve by renewing your commercial lease versus a relocation. This could include not paying upfront construction costs, new wiring, and furniture systems. Consider any available incentive contribution from your current landlord toward installation upgrades.

7. Undertake sensitivity analysis

Calculate your breakeven point where relocation is more advantageous than renewing. And analyse comparable market transactions to determine the best possible terms in the open marketplace.

8. Submit proposals

Based on the analysis, submit proposals to your current landlord and the landlords of the relocation site/s you have chosen. In your proposals, reflect the breakeven calculations and market comparable transactions.

9. Complete the transaction

Utilise the cost information and market intelligence you’ve gathered across all relocation and renewal options to establish a competitive process amongst your current and potential landlord/s and complete the transaction from a position of strength.

How we can help

If you don’t have the resources or the time to go through this process yourself, we can work with you on your Stay vs Go project strategy to create the greatest leverage. While it means extra work for us, the savings make it worthwhile!

Get in touch with a member of our team today to see how we can help you.

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