Written by, Brandi McDonald

Why should you hire a commercial real estate broker for your lease renewal? Many business owners believe that real estate brokers are only necessary when it comes to relocating; however, these experts play an important role in every aspect concerning your office lease.

Commercial real estate brokers specialize in negotiating with your current landlord,  providing you with the resources you need to get the best deal. Hiring a real estate broker will help you achieve the best possible terms for your lease renewal, so you can get the best deal and focus on the daily operations of your business.

Commercial Leasing: Your Landlord’s Perspective

Tenants often assume that their landlord’s quoted rate for their lease space represents “fair market value.” In fact, quotes generally fold in a number of costs, including an improvement allowance, legal review, leasing agent fees and costs for a third-party commercial real estate broker whether you use one or not. Your landlord anticipates spending capital on improvements to create a space ready for use, with upgrades including:

  • Relocating walls
  • Improving lighting
  • Adding plumbing
  • Painting
  • Installing new carpet
  • Replacement of damaged ceiling tiles

Hiring a commercial real estate broker for your lease renewal can help you negotiate the costs of these additional amenities and services, saving you valuable resources when it is time to renew your lease.

Benefits of Hiring a Real Estate Broker for Your Commercial Lease Renewal

As a business owner, renewing your lease is typically less disruptive than relocating to a new office building.  It is expensive and time-consuming to move and, to avoid the interruption, you may be willing to pay a premium to stay at your current location. Perhaps you’ve reviewed comparable properties and believe your landlord will provide a fair market rate — but is that true?

The purpose of a real estate broker in the renewal process is multi-faceted. Brokers know that “fair market value” is a subjective term. Landlords would rather continue to increase your rent with each successive lease term, arguing that fair market value is always higher than your current rate.  A commercial real estate broker will help your company:

  • Discover true market value
  • Determine your landlord’s motivations
  • Identify the current position of the ownership lifecycle of your building to create a strategic negotiation plan
  • Compare the landlord’s proposed renewal terms with recent deals completed in your building and comparable buildings
  • Remain in your preferred location at a fair price instead of having to relocate

What is a Real Estate Brokerage Firm Going to Provide During My Renewal Negotiations?

Business owners all know that time is money. Hiring a commercial real estate broker can help you focus on your everyday business activities instead of forcing you to do the legwork for your lease renewal documents. Brokers will:

  • Reconcile your current lease agreement against current market conditions
  • Compare similar properties
  • Research improvement allowances
  • Suggest concessions and additional lease language for your added benefit
  • Recommend contractors
  • Obtain preliminary construction bids
  • Calculate each party’s financial “point of indifference,” or POI.

The POI for the tenant is the point at which cash flows for relocating and renewing yield the same NPV.  It is NPV neutral point of renewing the tenant or backfilling the premises for the Landlord.  Calculating each parties’ critical value aids in negotiations, providing concrete numbers that support strategic decision-making.

A broker can save both time and stress, providing you with the best possible value when it comes time to renew your lease.

Giving the landlord the advantage by accepting any and all terms in a lease renewal agreement is not in your best interest. Hire a commercial real estate broker to advocate on your behalf. Brokers do the research to help you determine how much you should be paying for your renewal. They will provide you with the education and information needed to make the best decision for your company’s future while you focus on the productivity and profitability of your business.

Read our blog to learn more about commercial real estate.

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