Just like in any other industry, the law of supply and demand is the main driving force behind the rental rates of office and industrial space for lease. When the vacant inventory rises, the rental rates go down. In a prime example of this trend, the Manhattan office market saw a 10% drop in rental rates as vacant office space mounted throughout 2020.
The opposite scenario, however, is also true. Depending on the popularity and demand for a certain property, the rental rates can skyrocket. While most landlords are willing to negotiate the terms of a lease, including the asking rate, they typically have the upper hand in such situations.
There are, however, ways that companies can generate competition for their tenancy, and by extension, secure better lease terms and save money. Namely, if landlords know that you are looking at multiple properties, they will be more willing to reduce the asking rental rate and offer a shorter lease term, a bigger tenant improvement allowance, building signage, or a number of other concessions that would entice you to lease space in their property.
If the inventory of properties matching your needs is low, however, you should consider expanding your property search in order to create competition for your lease. Below we discuss some ideas of how you can generate a larger pool of prospective buildings. Ultimately, the more players are sitting at the negotiation table, the more competitive their offers will be.
Under Renovation and Future Developments
Oftentimes, these types of properties get overlooked, simply because they are not immediately available for touring and leasing. Most companies, however, plan their real estate strategy well in advance so, as long as the anticipated completion date works with your timeline, you should include the under-construction inventory in your search. Another benefit of pre-construction leasing is the ability to design and build out the space to your exact specifications, frequently at the landlord’s expense.
Pro tip: Many proposed developments are actually waiting on a lease commitment to break ground, so a developer may be especially willing to negotiate in order to get their project off the ground.
Sublease Space Opportunities
Another frequently overlooked option for office tenants is sublease space. Subleases are offered by existing tenants that are bound by a lease even though they may have vacated the entire suite or simply have excess space due to workforce or operation adjustments. Even though you would be negotiating with the tenant subleasing the space instead of the actual landlord, the owners of the other prospective properties would still look at it as a threat to closing their deal.
Pro tip: Tenants that offer sublease space would be happy to recoup even partial expenses; therefore, they would be willing to offer lower rental rates and other flexible terms.
Neighboring Office Submarkets
A lot of times areas that are no longer the hot spot in town still offer comparable properties so expanding your search geographically is another way to beef up your list of prospects. Landlords know that popularity is rarely a top priority for companies looking for space, and if they know you are exploring other even though less trendy submarkets, they will be more willing to negotiate. After all, they do want to preserve the prime status of their building and submarket by keeping the demand and occupancy high.
Pro tip: Oftentimes properties in less popular areas offer the same amenities as the buildings in the trendy part of town, but can be leased at a much lower rental rate.
Different Class Buildings
In a similar argument to the point above, you should also consider expanding your search to the adjacent Class of buildings. For example, if you are looking at cheaper Class A properties, you may find comparable assets in the higher-end Class B inventory. Alternatively, if you think you can only afford Class B, you should also review older Class A properties, where diminishing interest may force landlords to consider reducing the asking rental rate.
Pro tip: Be on the lookout for recently renovated properties as they may still command Class B rental rates while offering brand new interiors and updated amenities.
However you choose to source your building prospect list, the key is to let each landlord know that you are looking at other properties and negotiating with other owners, while also demonstrating your knowledge of the local market. You will not only get more respect but will most likely also walk away with a better deal. Alternatively, you could work with a tenant rep broker, who will uncover all the hidden opportunities in the market, lead the negotiations with every landlord, and ultimately secure the best money-saving deal, all at no cost to you.
Originally published on November 3, 2021 by our good friends and colleagues at iOptimizeRealty. The original post can be found HERE.