Many commercial tenants wait until the final year of a lease to negotiate new terms. But especially in today’s market, organizations may have an opportunity to create value by initiating lease negotiations early, using the remaining time on their current lease as leverage to negotiate a longer-term agreement. For organizations with up to four years left on a lease, a blend-and-extend lease negotiation strategy can offer meaningful financial and operational advantages.
What is blend-and-extend, and what are the benefits?
Blend-and-extend is a type of early lease renewal that revisits an existing lease before expiration, adjusting terms to reflect current market conditions while extending the commitment period. This often allows tenants to negotiate more favorable rental rates. However, using a blend-and-extend strategy for lease negotiation can benefit tenants in other ways, too, such as by securing landlord concessions that traditionally would have been available only during a relocation or renewal process. Additional possible opportunities include:
- Securing free rent periods
- Obtaining additional financial allowances for making improvements and upgrades to the rented space
- Expanding or reconfiguring space without relocating
- Eliminating uncertainty around future market conditions
The blend-and-extend approach to lease negotiation can be advantageous to tenants across commercial rental markets. For those who are paying rent above current market rates, it provides an opportunity to negotiate a lower overall rate more in line with today’s market conditions. For tenants in markets where rents are rising quickly, renewing early and extending their lease can lock in lower rates.
Who should consider a blend-and-extend lease renewal strategy?
While every lease and market is different, any organization with four years or fewer remaining on their lease should have a real estate consultant evaluate whether current market conditions create an opportunity to improve its position.
A blend-and-extend may be particularly beneficial for tenants that:
- Expect to remain in their location long term
- Need capital improvements or workplace upgrades
- Anticipate space changes due to growth or consolidation
- Want greater budget certainty
- Suspect their current rental rate is above market
- Prefer to avoid the disruption and expense of relocation
Blend-and-extend benefits landlords, too. Retaining an existing tenant is often less costly and less risky than marketing vacant space, funding new concessions, and carrying downtime between occupants. Furthermore, in today’s office market, tenant delinquency rates have climbed to record highs, and many properties face elevated refinancing and leasing risks. Securing a committed tenant can help landlords preserve cash flow, support occupancy, and reduce the likelihood of financial distress. These benefits can subsequently enhance a property’s income predictability and overall credit profile.
Why now may be the right time to negotiate
The earlier tenants renegotiate a lease, the more leverage they have to secure long-term value through lease extensions or landlord concessions.
In addition, the current commercial real estate landscape suggests it may be a particularly advantageous time for lessees to use the blend-and-extend strategy. Across many office markets, landlords continue to compete aggressively for stable, creditworthy tenants, giving dependable existing tenants a favorable negotiating position.
Secure the best lease terms possible by hiring a real estate consultant
Engaging a commercial real estate firm like Plante Moran Realpoint (PMR) to work with you and your legal counsel on a lease renegotiation can help you reach mutually agreeable terms with your landlord smoothly and efficiently. We provide critical experience and knowledge of lease negotiation, industry norms, market trends, the language of leases themselves, and buildouts customized to your space. As a trusted advisor and advocate for your organization throughout the process, we can help you maximize the benefits of the blend-and-extend strategy.
Real-world examples of blend-and-extend success
PMR has helped organizations across a variety of industries leverage blend-and-extend opportunities to achieve their workplace objectives. Some of the clients we have helped optimize their lease terms through blend-and-extend include:
- Professional services firm with multiple locations: PMR worked with a professional services organization that wanted to renew six U.S. locations’ leases, all of which were scheduled to expire within the next four years. By acting early, our client was able to capitalize on favorable office market conditions, where landlords were competing for quality tenants by offering lease concessions, free rent, tenant improvement funding, and reduced rental rates.
- Small office focused on workplace enhancements: PMR advised an office tenant that wanted to retain its existing space while investing in workplace improvements designed to encourage greater in-person collaboration. Before making those investments, the client wanted to be confident that it would stay in its current office space long enough to realize value from the improvements. PMR negotiated a longer lease term, secured landlord contributions toward the renovation costs, and reduced our client’s existing rental rate.
- Growing nonprofit organization: PMR worked with a community-based nonprofit that needed additional space to better serve its clients, though time remained on its current lease. Through a blend-and-extend approach, PMR helped the client expand its footprint, extend the lease term, and maintain occupancy costs at approximately the same level as before the expansion.
Don’t leave value on the table
Many organizations focus on lease negotiations only when expiration is imminent. However, whether you want to stay in your current location or are considering a move, waiting is never the best strategy. A well-structured blend-and-extend can reduce costs, improve workplace functionality, and create greater flexibility.
Plante Moran Realpoint helps tenants evaluate their options, understand current market conditions, and negotiate lease solutions that align with their business objectives. Contact our team to learn whether a blend-and-extend strategy could benefit your organization and help you maximize the value of your next lease negotiation.
