Commercial real estate is on its head. Sublease availability is driving rents down, and incentives have stayed at 2021 highs.
With every deal done, there’s a chance to set a new bar.
Here’s what we want tenants to know before entering a commercial lease negotiation.
It's a tenant's market. And, since these are unprecedented times (at least in the last decade), anything is negotiable.
Critically evaluate your future needs, negotiate hard and consider all opportunities before entering a lease.
Let your ideal terms be known:
Tenant tip: Don't exercise your option unless you already have a tenant-friendly lease. Instead, go to an open market!
When it comes to rent and incentives, landlords and agents will try to lead negotiations with market averages. But it’s important not to generalise.
Faced with mounting vacancies, many landlords will be motivated to fill holes in their portfolios as soon as possible. But not every landlord is having a fire sale.
To secure the best terms, tenants must find the market soft spots and develop their strategy around landlord motivators.
Tenant tip: Go in with the knowledge that there are no benchmarks. Commercial leases need to be negotiated on a case-by-case basis, considering the:
Even under normal circumstances, it can be hard to find good tenants. But, with supply now outstripping demand, things have become even more difficult.
That means many landlords are willing to go to lengths to keep or entice good tenants - discovering what's important to them, offering higher incentives and structuring a deal that satisfies their needs.
A couple of years ago, agents and landlords were always putting pressure on tenants to make snappy decisions. But, in a depreciating market (where things may get worse), tenants have the upper hand.
However, even in a tenant-friendly market, it can take a while to source and secure office space or renegotiate well. So if your current office lease is set to expire in the next 12-24 months, start the process early to:
Calculating the amount of time you’ll need comes down to the market and your business. But we recommend starting within the following time frames:
Tenant tip: There are plenty of great options out there. So, if you’ve left yourself enough time and don’t get the terms you want, don’t be afraid to walk away. There’s sure to be another suitable option available, that’s IF the Landlord doesn’t come around. Remember, the word “no” is powerful. Never split the difference!
When negotiating your new lease, be sure to negotiate clauses that protect you now and in the future. Specifically, think about:
The average vacancy rates in Sydney and Melbourne are currently sitting at 10.1% and 12.9%, respectively.
But these figures are seriously understated if you also consider:
So, if you’re facing an upcoming lease expiry, here's how you can leverage the competition:
Tenant tip: The best competition against your landlord is to let them think you're leaving. And conversely, the best competition against the market will be the offer you get from your landlord. So, even if you know you want to renew, or relocate, play both sides for the best deal!
The market is depreciating and becoming more competitive. Landlords are more motivated and more flexible than they've been in years. And is the perfect storm for tenants.
Talking to your landlord and the market simultaneously will improve your negotiation leverage. But the landscape is hard to navigate without an expert in your corner. There's more to negotiate, and tenants must weigh up every suitable option to get the best deal.
At Tenant CS, we execute commercial lease negotiation strategies for our clients – and our clients are always tenants, never landlords.
Contact us to act on your behalf!