When Should a Business Begin to Focus on its Next Lease?

Timetables can vary widely depending on the sizes of space required and specific needs. Many businesses should begin focusing on their next leases a minimum of two years before the expiration of their current leases – if not significantly farther out. While looking early does not mean committing early, the closer a company comes to a current lease expiration, the more a sense of urgency will come into play and the less likely a well negotiated and tenant-friendly lease or lease renewal will result. And just as damaging as poor rent terms - without the time to study, understand and reflect on the market, current conditions and a company’s immediate needs and projected future needs - poorly negotiated lease terms and/or inappropriate spaces can hound a company for years to come.

The Benefits of Starting Early

An early start is the best friend a lease-seeker has. While many executives focus on the two most obvious and dollar-defined terms, rent and tenant build-out allowances, these two terms encompass only part of a lease’s total costs. Focusing on pro-tenant operating expense terms, flexibility in subleasing, strong auditing clauses and other tenant-right terms often has as large (or larger) an impact on total expenses as negotiated rent. The more time a prospective tenant has to educate him/herself, and the more time taken to negotiate with landlords without a looming deadline, the more likely that tenant is to see positive net results. And as landlords have varying priorities, having the time to negotiate from a position of strength and maximizing leverages will enable a prospective tenant to better identify a landlord’s position and take advantage of negotiable terms and possible trade-offs that might be of specific import to the tenant.

As important as defining the terms of a lease is taking the time to identify the needs of your company – both in the present and in the future. What are your present constraints? Do you need more electric capacity? Are your telecommunications needs being met at your present location? What are your future needs? Do you expect to expand spatially, or perhaps outsource in the future and flexible subleasing terms are a priority? Do you have special datacenter needs, and if so how do you expect them to expand across time? Taking the time to fully and comprehensively understand your needs is critical in choosing an appropriate facility and in not finding yourself settling or handcuffing yourself due to approaching deadlines.

Landlords are in the business of leasing space to tenants on terms most favorable to themselves; they will sense urgency and take advantage of it. Having the ability to negotiate without constraint and to freely walk away from a lengthy negotiation that is not providing desired results, are the keys to creating a lease that will financially benefit your company.

Projected Timetable
Timetables vary and will be strongly influenced by required sizes and special needs. All fundamentally sound office space relocations, however, will have six components:

1. an Educational program regarding market, submarket and economic conditions,

2. an Analysis of the existing location and its shortfalls including a schematic of facility requirements, both immediate and projected into the future. This should be coupled with a personnel assessment inquiry and location-change impact projection,

3. a Location(s) Search and Study and analysis of potential economic incentives,

4. Negotiation(s) with one or multiple landlord(s),

5. the Planning and Facility Preparation Phase including cost control and potential configurations and build-outs,

6. the Physical Move itself.

Below is a projected timetable for a tenant relocation involving a 10,000 SF facility. This projection will expand as the desired space grows in size. Facilities with greater footprints can require substantially more time, particularly in negotiation, to secure on personalized and pro-tenant terms.

As you can see, a relocation can be time-intensive and the more you allow yourself for education and possible multiple negotiations before an approaching deadline, the more likely you are to secure a lease and space that will financially benefit your company for years to come. And while the above model typifies a successful facility move timeline for a 10,000 SF space, failed negotiations are commonplace – allow yourself the time to negotiate, potentially multiple times, and do not box yourself in time-wise. Even if your intention is to renew a lease at your present location, you can leverage your position and bargaining power regarding possible build-outs and term renegotiations with local market knowledge, and strengthen your negotiating position by identifying potential alternate locations. Positioning and leverage is everything, and nowhere is that more true than time constraints when negotiating a lease. Begin your facility search early, create a timetable, follow through on your efforts and position yourself wisely.