Aug 29, 2014

3 Tips to Help Cut Your Rent Now

By Don Catalano


CRE, Commercial Real Estate, Corporate Real Estate, Occupancy Cost, Tenant TipsWith the end of the calendar year looming, many companies have cost cutting on their mind either to maximize profits for 2014 or to get 2015 off to a good start. While rent might seem like a relatively inflexible cost due to the long term nature of many leases, you have more control over your occupancy cost than you might expect. Here are three ways to help you cut your rent and occupancy expense now. 

1. Consolidate and Separate Unused Space

If you go through and benchmark every space your company occupies, it's likely that you'll find a great deal of unused space. Even if you don't have any closed-down locations, over time needs evolve and many spaces that were once full end up looking like Swiss cheese. Just because you aren't fully utilizing the space doesn't mean that your occupancy cost will drop.

To save money on those spaces, the first step is to reconfigure them so that all of the occupied areas are contiguous, hopefully leaving a vacant area off to the side. Once you have done that, you can literally wall off that vacant space, separating it completely from the rest of the building. In a perfect world, you'd be able to sublease it and recover all of your occupancy cost. In a highly imperfect world, you can take advantage of the physical separation to turn off the lights, lower the thermostat (or raise it in summer) and discontinue janitorial service. This doesn't eliminate the rent, but it does lower your operating expenses.

2. Aggressively Sublease Vacant Space

Have you ever booked a room at a hotel for $200 or $300 a night, then found out that the same hotel was selling rooms on Priceline or Hotwire for $75 a night. At first glance, this might seem like a bad strategy for the hotel. Why sell a room for $75 when someone else will pay $250? The reason is simple. If a hotel has two rooms and only one person willing to pay the $250, anything it can get for the second room is better than nothing, as long as it's more than the incremental cost of renting it out.

This is exactly what you should do with your vacant space. It would be great to get your entire occupancy cost back from a subtenant. However, it's better to get something than nothing. Letting the space go for a significant discount can get it filled and save you money.

3. Renegotiate Leases, Trading Time for Cost

When you have spaces that you want to retain, you don't have to be at your landlord's mercy when it comes to your occupancy cost. As you come within a year or two of the end of a long-term lease, you may have the upper hand in negotiations. The landlord knows that he could lose you as a tenant at that point. On the other hand, if you stay under a three or five year option, you will always be a few years from expiring.

Talk to your landlord and let him know that you'd be interested in staying for the long term if you could get a concession. Whether you get a few months of free rent or you get a rent reduction over your renewal term, you're still saving money in the near term. This won't always work, but if your landlord likes the stability of long leases, you could be able to work out a deal where both of you win.


Other articles to check out:

A Tenant's Guide to Rent Abatement

Understanding Rent Escalation Clauses

Three Steps to the Own vs. Rent Decision


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Topics: commercial real estate

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Don Catalano