How to Negotiate the Best Warehouse Lease for Corporate Tenants

As a commercial tenant, your warehouse space is a critical leg of your productivity and overall spending. And there’s never been a more important time to negotiate a strong warehouse lease.?

The new normal we’ve become accustomed to is on-demand shipping, and this obviously requires better logistics that can support production and quick turnovers. However, this also complicates the position of corporate tenants at the negotiation table. With so many companies scouring the market for premium industrial space, finding the right lease for the right price can seem like an impossible task.?

But don’t worry-it’s still possible.?The prepared and knowledgable tenants have the power to negotiate an optimal warehouse lease with favorable features, for a great price.?In this article we are going to cover a few ways you can negotiate your best warehouse lease.??

Understanding Warehouse Demand?

Out of all the corporate tenants, those looking for warehouses may have the hardest road ahead. We’re not saying that it will be difficult to find and negotiate the right warehouse, but the fact is that you’re facing the most competition.?

While office tenants looking for new space are benefitting from record high vacancies and low demand, industrial tenants are experiencing the opposite.?To accommodate the new normal of online delivery, online retailers have been rushing to scoop up premium industrial space for the last several years.?

According to Propmodo, the country’s vacancy rate for warehouses in 2020 was 5%. While this is already low it has dropped even further. Currently,?the industrial vacancy rate is around 3% to 4%.?For reference, the national office vacancy rate as of January 2023 is 16.6%, according to the Commercial Edge.?

There has been a precedent set of steady demand, even since 2021 which witnessed the highest quarterly net absorption since 2008.

One of the most effective techniques for negotiating a lease is creating competition for your tenancy.?If you have multiple landlords interested in your business, you have more leverage to decide the best terms and price you want in a lease. But, if you’re a warehouse tenant, don’t let this discourage you. It just means?you need to be more prepared to compare the price differentials between properties in conjunction with how well they accommodate your needs.?

So, what does this mean for tenants??Conduct research in the market that you’re interested in, and perhaps beyond the market you originally considered.?You may have a better likelihood negotiating a favorable lease for your interests in areas with lower warehouse demand. Read our article that covers the 6 considerations to identify your optimal warehouse location:?How to Find the Right Location for Your Warehouse.

Come Prepared with Stats?

Since there’s so much competition, there’s no room for error at the negotiating table. For corporate tenants this means getting crystal clear on the optimal building stats of a warehouse (and if they don’t have them add that to a notch in your belt).?

What features in a warehouse do you need to achieve your company’s optimal productivity? Keep in mind things like:?

-???????Ceilings with sufficient heights?

-???????Floors with sufficient weight-bearing capacity

-???????Location with easy ingress and egress

-???????Adequate floorspace and cubic storage?

-???????Proximity to major highways, rail lines (if necessary), airports or ports?

-???????The age of the building, roof, and HVAC system

-???????Functional lighting and sprinkler systems

-???????Security safeguards (CCTVs, gates, guards, etc.)

-???????Accessible dock doors, etc.

Premium warehouse features or more modern facilities will obviously be priced with higher base rents. But, since they will improve a company’s productivity, it may be worth the cost.?

However, if a building is lacking one or more of your specifications, it’s not the end of the road.?Your stake in negotiations will change, and you can drive a better deal.?When negotiating, what you give is what you get. So, if you offer a long-term tenancy, your landlord may be willing to upgrade the space if they know they will have a guaranteed income. Not only that, but since the warehouse market is so inundated with potential tenants,?a longer-term lease may allow you to stand out above the rest. You may get preferential treatment over a short-term tenant.?So, when determining your warehouse lease specifications, never forget term length influences negotiations.?

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