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What are the best practices for negotiating a lease renewal in different market contexts?

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Lease renewal is a critical decision for any corporate real estate (CRE) occupier, as it can have significant impacts on the operational and financial performance of the business. However, the best practices for negotiating a lease renewal may vary depending on the market context, such as the supply and demand dynamics, the landlord-tenant relationship, and the economic and legal environment. In this article, we will explore some of the key factors and strategies that can help you achieve a favorable lease renewal outcome in different market contexts.

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Eric Gonzalez

Facilities Management Professional, LEED? Green Associate?

1 Understand your leverage

One of the first steps in negotiating a lease renewal is to assess your leverage as a tenant, which is determined by the balance of power between you and your landlord. Your leverage depends on several factors, such as the availability and attractiveness of alternative spaces, the vacancy and absorption rates in the market, the strength and reputation of your landlord, and the terms and conditions of your existing lease. By understanding your leverage, you can identify your bargaining position and set realistic expectations for the negotiation process.

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2 Conduct a market analysis

Another important step in negotiating a lease renewal is to conduct a market analysis , which is a comprehensive research on the current and projected trends and conditions of the local and regional real estate market. A market analysis can help you benchmark your current lease against the prevailing market rates and terms, and identify any opportunities or challenges that may affect your renewal decision. A market analysis can also help you evaluate the feasibility and costs of relocating to another space, if needed, and compare the benefits and drawbacks of staying or moving.

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Rotem Elias

I write about Lending & Business / Senior Underwriter @ New Jersey Community Capital
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Working with a real estate broker will help because they'll have more information on recently executed leases, current open spaces, and more about the market.

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3 Engage with your landlord early

A key best practice for negotiating a lease renewal is to engage with your landlord early, preferably at least 12 to 18 months before your lease expiration date. By initiating the dialogue early, you can demonstrate your interest and commitment to renewing the lease, and establish a positive and cooperative relationship with your landlord. Engaging with your landlord early can also give you more time and flexibility to explore your options, negotiate the best terms, and execute the renewal agreement.

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Rotem Elias

I write about Lending & Business / Senior Underwriter @ New Jersey Community Capital
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My parents did not renegotiate their lease early and then a new landlord took over and hiked up their rent. Always negotiate early if you can.

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4 Seek expert advice

Another best practice for negotiating a lease renewal is to seek expert advice from a professional CRE advisor, such as a broker, consultant, or lawyer. A CRE advisor can provide you with valuable insights and guidance on the market context, the negotiation strategy, and the legal and financial implications of the lease renewal. A CRE advisor can also act as your representative and advocate in the negotiation process, and help you achieve the optimal lease renewal outcome for your business.

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Eric Gonzalez

Facilities Management Professional, LEED? Green Associate?
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Getting feedback and assistance from a real estate lawyer and broker is key to your success. Both will be specialists in their fields and the market you chose. Having them on your side will put you on even footing with your landlord, because they have their broker and lawyers who do this all the time. In addition, having these two on your side can help you learn what other alternatives are out there and what other deals are happening that could give you greater bargaining power during negotiations. Don't do this alone, and do not rely on your internal legal. They mean well, but unless they are reviewing leases for a living in the market, they wont have the insight that can help you through the process.

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5 Review and negotiate the lease terms

The final step in negotiating a lease renewal is to review and negotiate the lease terms with your landlord, based on your leverage, market analysis, and expert advice. The lease terms may include the rent, the lease term, the rent escalation, the security deposit, the maintenance and repair obligations, the tenant improvement allowance, the sublease and assignment rights, and the renewal and termination options. You should aim to negotiate the lease terms that reflect your current and future business needs, goals, and priorities, and that align with the market context.

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6 Monitor and manage the lease performance

After signing the lease renewal agreement, you should monitor and manage the lease performance throughout the lease term, to ensure that you and your landlord comply with the lease obligations and expectations. You should also keep track of the market changes and trends, and maintain a good relationship with your landlord, to prepare for any future lease renewal or renegotiation opportunities.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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What are the best practices for negotiating a lease renewal in different market contexts?

1

2

3

4

5

6

7

1 Understand your leverage

2 Conduct a market analysis

3 Engage with your landlord early

4 Seek expert advice

5 Review and negotiate the lease terms

6 Monitor and manage the lease performance

7 Here’s what else to consider

Corporate Real Estate

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What are the best practices for negotiating a lease renewal in different market contexts?

1

2

3

4

5

6

7

1 Understand your leverage

2 Conduct a market analysis

3 Engage with your landlord early

4 Seek expert advice

5 Review and negotiate the lease terms

6 Monitor and manage the lease performance

7 Here’s what else to consider

Corporate Real Estate

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