Negotiating A Commercial Property Lease In A
Rising Market
Author: Tim Maunsell

The 90's was a golden decade for tenants & tenant
representatives. Establishing leverage over your landlord was
easy because office vacancies were steadily increasing and
landlords were under the impression that if they didn't do a
deal today, the market would continue to erode. As a result,
landlords were extremely aggressive offering large incentive
packages that provided money for fitouts, & huge rent free
periods. In short, getting a landlord to negotiate an existing
lease was not a difficult job.

However, over the last few years the market has begun to change
with steadily decreasing vacancies. Negotiations and how a
tenant should approach their landlord have been forced to change
also. There are two main reasons for change:

1) Because of smaller lease incentives, lease assumptions have
decreased dramatically. Tenants trying to renegotiate a lease
with several years left on the existing obligations lost the
leverage that existed in the 90's when they could threaten to
leave for another building if the landlord didn't restructure
his lease.

2) Effective rental rates (the profit a landlord makes after
netting out all costs of his concession package) are increasing.
Many landlords would rather wait in what they anticipate to be a
more favorable market for ownership than to restructure an
existing lease today.

Although the above items have changed the face of negotiations,
it is still a tenants market and there is no reason for tenants
to simply accept market rates and above. As the market has
changed, negotiating tactics must change also.

Here is some advice when you want to renegotiate your existing
lease:

1. Know your landlord. As a tenant it is imperative that you
know the goals and objectives of your landlords. Is the owner a
passive holder of the premises & therefore less likely to give
large incentives?

2. Be flexible. Sometimes landlords are not opposed to
renegotiating a deal, they simply don't like the structure and
shape of the deal at hand. So be flexible so the deal is
attractive to both parties.

3. Geographically expand your horizons. Some sub markets might
be tight (i.e. Sydney A grade space) whereas the North Shore may
have the capacity to deal with large space takers competitively.
Smart tenants can effectively leverage various sub markets to
suit their needs.

4. Seek creative solutions. Despite low incentives, one way to
get a low cost alternative to your current premises, is to find
space that is already fitted out, in addition try to find
tenants who would be interested in your space early to avoid any
make goods requirements.

5. Look to the future. Just because your lease is not up within
the 12 months does not mean the owner wouldn't be prepared to
cut a deal now. In addition, you could seek an expression of
interest campaign to tender your future requirements.

A tenants negotiating tactics and strategy must change with the
market. Deals can be done now, more than ever, a tenant must be
creative and understand the motivations of the other side when
at the negotiating table.


About The Author: Tim Maunsell is the owner of Maunsell
Property Consultants, (http://www.maunsell.net.au) a firm of
commercial property agents and tenant representatives who work
exclusively for clients wanting to negotiate a better deal on a
new or existing commercial property lease.