Recasting Your Lease in a Soft Market
Your landlord values your tenancy now more than ever. Here’s how to capitalize on it.
Gloom and doom. Those may be the best words to describe the current real estate market, which continues to soften. It’s a tough time to be a landlord; vacancy rates are at record highs, and the time it takes to find new tenants can be extensive. Therefore, landlords are willing to negotiate new lease terms to ensure their properties remain occupied. This is great news for businesses currently leasing or preparing to lease space.
A property owner’s goal is 95–100 percent occupancy at all times. Vacancies are lost opportunities — and expensive ones. Operating expenses, loss of rent, and the cost of securing new tenants can erode the value of a landlord’s investment.
As a current tenant, you have significant leverage — especially given today’s real estate market. It’s important to know your options and reel in the best deal possible.
Thanks to soaring vacancy rates throughout the Midwest (in some areas, vacancies exceed 20 percent), landlords are increasingly willing to get creative with economic and non-economic lease terms. For current tenants, this is a great opportunity to revisit your lease obligation in advance of its expiration and, in exchange for a longer commitment (and possibly more flexible terms), renegotiate a new lease under significantly improved terms.
Recently, we were able to help Right Management, a career transition and organizational consulting firm, recast its lease.
Through continued process improvement of its programs, Right Management is growing rapidly and becoming more efficient with space utilization. Plante Moran CRESA examined its space configuration and leveraged the soft real estate market to trade space consolidation for a favorable lease extension. By recasting the lease, Right Management reduced its previous rate to better align with current lower market rates, updated its interiors, and reduced occupancy costs. Typically, if you’re more than halfway through a lease, you’re in a great position to recast your lease — just as Right Management did.
To incent tenants into making a longer lease commitment, many landlords offer concessions, including:
Gloom and doom. Those may be the best words to describe the current real estate market, which continues to soften. It’s a tough time to be a landlord; vacancy rates are at record highs, and the time it takes to find new tenants can be extensive. Therefore, landlords are willing to negotiate new lease terms to ensure their properties remain occupied. This is great news for businesses currently leasing or preparing to lease space.
There Are Plenty of Fish in the Sea
A property owner’s goal is 95–100 percent occupancy at all times. Vacancies are lost opportunities — and expensive ones. Operating expenses, loss of rent, and the cost of securing new tenants can erode the value of a landlord’s investment.
As a current tenant, you have significant leverage — especially given today’s real estate market. It’s important to know your options and reel in the best deal possible.
Capitalize on the Available Incentives
Thanks to soaring vacancy rates throughout the Midwest (in some areas, vacancies exceed 20 percent), landlords are increasingly willing to get creative with economic and non-economic lease terms. For current tenants, this is a great opportunity to revisit your lease obligation in advance of its expiration and, in exchange for a longer commitment (and possibly more flexible terms), renegotiate a new lease under significantly improved terms.
Recently, we were able to help Right Management, a career transition and organizational consulting firm, recast its lease.
Through continued process improvement of its programs, Right Management is growing rapidly and becoming more efficient with space utilization. Plante Moran CRESA examined its space configuration and leveraged the soft real estate market to trade space consolidation for a favorable lease extension. By recasting the lease, Right Management reduced its previous rate to better align with current lower market rates, updated its interiors, and reduced occupancy costs. Typically, if you’re more than halfway through a lease, you’re in a great position to recast your lease — just as Right Management did.
To incent tenants into making a longer lease commitment, many landlords offer concessions, including:
- Rent abatements. You can negotiate a provision that will give you the ability not to pay rent for periods of time in the beginning or throughout your lease.
- Lower rates. This allows you to reduce rent obligations over the entire term of your lease.
- Cancellation provisions. This provides more flexibility for the tenant. For example, you could negotiate a 10-year lease with the ability to cancel the lease after the seventh year, with some reasonable notice.
- Lower operating expenses. You can negotiate a provision that will allow you to reduce some portion of your space at certain points within the lease term without penalty.
Reel in the Best Deal for You
A building’s value is not determined by how much brick and mortar a landlord owns but on the income stream generated from the asset. Keeping tenants by offering concessions is far less costly than carrying vacant space.
Thanks to the soft real estate market, it’s a tough time to be a landlord, but it’s a great time to be a tenant. Plante Moran CRESA, an exclusive tenant representative firm, can help guide you through the recast process. For more information on how to leverage your tenancy, give us a call.
