Choyce Tips: June 2010: Timing is Everything

(For access to full html version, please click here.) Few occasions offer greater financial opportunities for a company than its lease renewal or relocation. Yet many tenants fail to understand the correct timing needed for proper positioning and negotiations. We say it again… real estate is a process not an event. 

By starting too early, you compromise your position by shielding your landlord from competition with others because of a lease start date too far in the future. By starting too late, you may restrict another landlord’s ability to modify alternative spaces in time to best suit your needs. 

At the very least, you should convey the appearance of a process and timing to keep all options open. Since deliberations may become long and difficult, a general timeline will also help you proceed in an organized and efficient manner.

·                    Get to know your company

How many workers do you employ? Are you expanding, consolidating or stable?  How is your market evolving?

Knowing yourself also involves less concrete matters such as corporate culture, management structure and flexibility.  If you are a small, entrepreneurial company, you may be able to move into existing “as is” space within two months of selection.  At this level, the critical timing issues concern lease negotiations, scheduling the move and the installation of phone lines. 

For larger companies, two months may be unrealistic to even get management aligned on the final selection.  Add to that a needs assessment process, market studies, employee demographic analysis, and you can add months to the process.  Once you narrow the selection to one or two buildings, the space planning process, polling department requirements for staff levels,  creation of construction drawings and obtaining permits can add three more months,  especially for more structured and hierarchical companies. After factoring in up to 90 days for remodeling, you are looking at eight-to-nine months minimum.

·                    Get to know the market

For tenants with less than 20,000 square feet in a soft market, the likelihood of finding suitable alternatives without rebuilding can save three-to-five months of total process time.

Instead of renewing your lease early, when the landlord will often sweeten the pot with a slight decrease in rent, you can save more by letting your landlord know you are shopping around.  Assembling a relocation team will demonstrate you are exploring all alternatives.

For tenants with more than 8,000 square feet, your landlord knows you will be unable to complete the process in six months.  Our timeline suggests starting the process a year in advance, and, depending on the extent of alterations, making a decision with five-to-eight months to go.   

Remember: knowledge of yourself, the market and your landlord — and acting at the appropriate time — is crucial in the negotiation process.