A commercial real estate negotiation is supply and demand in action. When a landlord has open space and multiple tenants competing for it, the price goes up. However, if you have multiple landlords competing for your business, your position improves. While a bidding war for your tenancy might not exactly be an auction, you can still create a bidding war that results in lower lease rates and better concessions. Here's how:
1. Start Early
It's difficult to have a strong negotiating position if you're about to lose your commercial real estate space. If you know that you have six months to a year before you have to move, you're in a better position to not only negotiate, but also walk away from the table and start again with someone else. Examine your lease and see if you have a holdover position that has reasonable terms if you're running out of money. Paying some extra rent to stay past your lease could be worth it if you can negotiate more confidently.
2) Hire a Tenant Rep
Having a commercial real estate broker that is skilled in tenant representation is a fundamental part of creating competition for your tenancy. He can identify spaces for you, manage negotiations and walk a fine line that lets him inform landlords of what competition they’re facing while also keeping them at the table to negotiate with you.
3) Keep an Open Mind
You can't create competition for your business without having multiple spaces under consideration. Once you've determined your needs and potentially even found a space that serves as an archetype, here are some ways to find other spaces to throw into the mix:
- Consider similar commercial real estate in the market
- Consider sublease space in the building you currently reside
- Consider spaces that need extensive TIs - the landlord might pay to put them in
4) Compress Decision-Making Timeframes
Although you started early and have ample time to find a space, you can't create competition for your tenancy without having offers out to multiple landlords at the same time. As such, it's best to do your research to identify buildings, conduct your tours within a short period of time, and then commence the offering process with multiple parties at once.
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5) Share Your Situation
While your commercial real estate broker will tell you to limit the information you share, you will want the landlords you're negotiating with to know that they aren't the only game in town. Inform them that you are moving, aren't pressed for time, and are considering other excellent spaces. This will reveal your upper hand and show that they have to compete for your business.
6) Make Aggressively Realistic Offers
The state of your market will determine what you should negotiate. In markets with high vacancy and little chance of major improvements, the starting point for a net leased space might be to offer no rent, but to pay the CAMs for your space. In a tighter market, the negotiating might start above 90% of the asking rent and concessions. The key is to make an offer that errs on your benefit, but still keeps the landlord engaged.
7) Negotiate
The landlord will probably respond to your aggressive offer with his own. It’s common to trade offers in commercial real estate to until you get to the bottom line. Your tenant rep will guide you through the process, and at the end, you should get the best deal possible.
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