Understanding Commercial Lease Renewal or Service Market Rent
Walter Duke + Partners is regularly called upon to help landlords and tenants negotiate lease renewals in commercial properties. Commercial lease renewals, while seemingly straightforward are not as simple as they may appear and formulating an effective renewal strategy is a key component of the overall leasing process for both tenants and landlords.
Commercial Leasing Tips
Although a successful renewal strategy is tailored based upon the building’s situation as well as internal objectives, there are six key elements which are required to develop and implement a successful commercial lease renewal strategy:
- Lease Terms – the client must have a clear understanding of its lease provisions and utilize favorable clauses to its benefit and prepare defenses against potentially harmful provisions as well as the term of the lease itself. All can dramatically impact renewal rent and ultimately asset value.
- Competitive Market Position – implementation of an effective strategy will hinge upon the ability to understand the issues and implications of the building’s current situation, including ownership profile and their financial objectives, building debt, tenant profile including credit, rate, and rollover, and the market perspective.
- Market Conditions – is the market soft? Are rental rates declining or trending upward? Are external market conditions favorable to the tenant or landlord?
- Tenant Improvements – tenant improvements can be very expensive and have a direct impact on achievable rental rates. What are current costs? What are typical allowances in the primary market area?
- Parking – as office usage changes and parking becomes even more critical Walter Duke + Partners helps their clients understand the impact of parking on achievable market rent.
- Signage – the cost and value of proper signage or lack thereof can have a dramatic impact on market rent.
For tenants one of the first steps that Walter Duke + Partners undertakes is to create a financial model evaluating the costs and risks associated with vacating or re-leasing your space at the end of the lease term.
Whether you’re a landlord or tenant this analysis will take into account current fair market rents, absorption trends, lost income, tenant improvements, base building upgrades, and credit risk.
A comprehensive financial model that compares the “apples to apples” costs of renewal versus relocation to be utilized throughout the process is critical. This analysis will increase your leverage with the other party during the renewal negotiations.
Credible Market Research is Key for Tenant or Landlord Representation
A critical part of any successful renewal strategy includes a credible search of the market and understanding of current and forecasted market trends. For tenants, showing the landlord that you are serious about looking into alternative locations in order to reduce your occupancy costs allows you to gain much needed leverage.
We help our clients assess current market conditions and whether or not those conditions will impact the lease renewal rate. For landlords, we help identify available options and potential competition to retain your tenant.
Four Decades In The Making
Deeply rooted in the Florida market, Walter Duke + Partners provides innovative solutions and sound market advice.
We’re routinely ranked alongside the finest national firms and proud to help our clients, including people just like you, make highly informed critical decisions.
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How To Negotiate An Office Lease.
Making the wrong renewal decisions can cost tenants thousands of dollars if not hundreds of thousands of dollars in unnecessary lease expenses or conversely negatively impact the market value of a landlord’s real estate asset.
Walter Duke + Partners works closely with your legal, accounting and leasing team to put you in the best position to make the right decisions for you or your company.