One of the most frequently asked questions by our tenant representation clients is why they should use a tenant representation broker to manage their lease renewal. Many tenants believe that because they plan to renew and are not looking for new space, that they don’t need to use a broker.
While it’s true that tenant representation brokers add value via the site selection process, they are also there to serve and advocate for their clients throughout lease negotiations and provide market intelligence necessary to secure the best transaction possible.
But, would you write your will without the help of a lawyer? Invest millions of dollars without the help of a financial advisor? That is essentially what you’re doing when you choose to not use a tenant representation broker on your real estate transaction.
1. To Create Leverage
Oftentimes, landlords will not give concessions if they are certain the tenant will stay. So, in order to get the best transaction, we have found that tenants should treat the renewal process the same way as if they were planning to move. This means actually going through the site selection process, even if you don’t think you intend to relocate.
2. To Gain Market Insight
Taking the time to go through the site selection process is not solely about leverage. It can also help you better understand the market, which may have changed radically since the last time you signed a lease.
Understanding the current market may give a you new perspective on how good, or sometimes how poor, your lease terms actually are.
Working with a reputable tenant representation brokerage can give you access to up-to-date market data such as vacancy and rental rate trends as well as lease comparables (“comps”) in your submarket and, sometimes, your building, so you can see how the deal you’re being offered compares.
3. To Negotiate Better Terms
Renewals are a landlord’s best case scenario, as it saves them money in a number of ways:
- Keeping the space occupied means that they do not incur any downtime, meaning no break in rental income
- Avoiding vacancy means that the landlord does not incur any marketing costs.
- Typically, landlord out of pocket expenses such as finish out allowances are smaller on renewals.
But what if I have a great relationship with my landlord?
Because office lease terms typically span 5 to 10 years or more, many of our clients develop strong relationships with their landlords. Sometimes tenants feel like this great relationship means that they will be able to secure better terms on their own, without the help of a broker. We caution against this mentality.
Some landlords will even tell tenants that it will cost them less to do the deal directly because the tenant will “save” the landlord money on the tenant representation broker’s commission. Here’s why:
In Tampa, generally landlords budget 6% of the total transaction value for broker commissions. Of that, 2% goes to the landlord’s leasing broker and the other 4% goes to the tenant representation broker. If a tenant chooses to do a direct deal (without the assistance of a tenant representation broker) the landlord’s broker will earn 4% instead of 2% – doubling their commission. So it is in their interest to transact with the tenant directly.
Landlord brokers will typically say that the 2% extra is what the tenant should see in savings in their lease terms. But in our history, we have found that to not be the case. Tenants are not as in tune with market dynamics as real estate professionals and end up with less favorable economics than could have been achieved without the help of a skilled tenant representation broker. In our experience, the value added by a tenant representation broker far exceeds 2%.
What if I already have a renewal options in my lease?
Even if you have a renewal option in your existing lease, it is wise to go through the entire process to secure the most favorable economics.
A lease renewal very rarely gets executed exactly per the language in a tenant’s existing lease. Including a renewal option in a lease is always good to have in place as a safety net, but, in practice, almost all renewals are negotiated similar to the way a new deal would be.
What’s next?
If you have an upcoming lease expiration or renewal option, I would be happy to meet with you to discuss your potential options. Reach out today to schedule your phone consultation with the our team.
