In today’s office market, landlords are providing generous improvement allowances to fund the renovation of office space for new and renewing tenants. The amount depends on many factors including the creditworthiness of the tenant,the terms in the lease and the total square footage of the space. Generally, a landlord offers more for larger tenants with a longer lease term (seven years or more).
In a lease renewal, you can change a lot more than the standard options of extending your term and reducing your rent. Before you start negotiations, it’s best to review the accumulated three to ten year history of issues with your current space layout, HVAC system, water leaks in the ceiling or exterior windows, needed common area upgrades in hallways,bathrooms & the building lobby, amenities, and parking area. Renewing a lease brings the opportunity to fix them.Brainstorm with your team to evaluate what needs to be changed. Landlords want to retain their tenants to prevent downtime and avoid the investment needed to attract new occupants. This factor makes them more receptive to your proposed improvements.
Most tenants understand the impact of office rent on their bottom line and try to reduce it, often by negotiation. However, they frequently overlook free rent, a common concession in the current real estate market.When averaged over the full term of the lease, free rent decreases the total rental expense more than one might expect. As an example, let’s say you are leasing 10,000 square feet for five years at $30 per square foot. Negotiating four months of free rent lowers the annual average almost $2.00 per square foot, a cash flow savings of almost $100,000, often within the first lease year.
Adam Cognetta, vice president of Choyce Peterson, Inc. (www.choycepeterson.com), a full service commercial real estate brokerage and consulting firm with a specialty in representing both office and healthcare tenants, recently served on the Executive Committee for the American Cancer Society’s Comedy Against Cancer event in Stamford, CT, which raised net donations of more than $350,000.