As a commercial real estate tenant, you may encounter one of many instances where your CRE lease or space no longer suits organizational needs.
Perhaps your location is no longer near the most lucrative consumers or it’s too small to accommodate business growth.
Upon lease expiration, when you find yourself no longer satisfied with your commercial lease or space, you have two main options:
- Restructure certain aspects of your lease.
- Relocate to a new property that better meets your needs.
Depending on your situation, one option may be more feasible for your organization compared to the other. Continue reading to learn more about restructuring or relocating, and uncover key questions to answer before making a decision.
Restructuring Your Commercial Real Estate Lease Agreement
When no longer satisfied with your CRE lease, but don’t want to leave your building, it may make sense to partner with a trusted commercial real estate broker and enter more robust negotiations with your landlord.
As a tenant, you have the opportunity to restructure one or many aspects of your commercial lease, including:
- Reduced or deferred rent cost.
- Reduced or increased square footage of usable space.
- A shortened lease period, or early lease termination.
- An extended lease period in exchange for lowered rent.
- Remodeling contributions from a landlord.
- Completion of deferred maintenance by a landlord.
Keep in mind, certain conditions increase your likelihood of positive landlord-tenant negotiations. For example, a landlord will likely struggle to find another suitable tenant in a declining real estate market, and thus, will be more inclined to negotiate better terms and keep you in the space. A strengthening real estate market could also work in your favor if you’re interested in cutting your lease term short—your landlord shouldn’t have any issue finding a replacement.
Before choosing to restructure your current commercial lease, consider the following questions:
- If you are attempting to negotiate your rent, do you have a working knowledge of the current lease market?
- Are you willing to reduce the size of your commercial real estate?
- Do you have a plan for business success to justify the need for a restructured lease?
- Are you satisfied with your location and operations, but looking to reduce your costs?
Relocating Your Commercial Real Estate
There are several instances in which your existing CRE will not work, no matter how you attempt to restructure your lease with your landlord.
Relocation works best when:
- Your commercial real estate is too small to accommodate future growth.
- You’re ready to downsize in response to a new hybrid or remote workforce.
- There are better locations, closer to vendors, customers, employees, and suppliers.
- Other locations have more economic incentives or lower operating costs.
- Renovations may not be worth the cost or the hassle of working through construction.
Before relocating, consider the following questions:
- Will a relocation improve your proximity to vendors, customers, employees, and/or suppliers?
- Can you afford the costs of relocation?
- Is there a sufficient labor pool in the new location?
As one of the largest line items on your income statement, your commercial real estate should support business goals, not hinder them. Knowing and exercising your lease options as a tenant is critical to real estate and organizational success.
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