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.
In addition to saving money,free rent at the beginning of the term helps offset front-end costs of an office transition such as movers, furniture and phone vendors, computers, etc.Conversely, many landlords are now agreeing to stagger free rent over the first few years of the lease term, which allows tenants to maintain a net discounted rent over a period of time.
In many instances, landlords prefer offering several months of free rent instead of reducing the monthly rate because they must provide lenders statistics on their tenants. Higher rates suggest improved ability to repay and may also make the building more attractive to a future buyer.
For tenants, free rent is a commonly available opportunity to improve their lease and save significant dollars.