It’s always a tenant’s market

It’s always a tenant’s market

By Stephen A. Cross

Always? Yes, always.

In my experience, since 1984, below-market leasing opportunities always exist, in every economic cycle, providing that tenants are thoroughly informed and properly prepared.

The following insights will take some of the mystery out of the process of negotiating favorable lease terms on all types of commercial space.

No reasonable offer is ever refused: Would it surprise you to learn that landlords do not expect to realize their asking price?

That’s right, the advertised rate is nothing more that the “sticker price” and is used to set the tenant’s expectations. The reality of commercial real estate is that supply and demand changes daily, and an offer that was rejected on Friday may be welcomed on Monday.

Ultimately, what’s reasonable is based on how much the tenant is willing to pay and the amount the landlord is prepared to accept, at that moment.

Macro versus micro: Market-research reports are generally prepared by the companies that represent landlords, and reflect the average prices purportedly paid (macro-thinking) during an earlier period of time without regard to negotiated concessions.

Therefore, using them as a basis to make leasing decisions can result in overpaying. As prices, terms and incentives for similar space, in similar buildings, fluctuate widely, a far more accurate method is to focus on current availabilities, including subleases, within individual buildings (micro-thinking), and target landlords with the greatest needs to lease space.

So, if you want to save big, think small.

Understand that urgency equals leverage. For most landlords facing prolonged vacancies, and those wishing to sell the property, the decision to discount the rental rate and grant generous concessions in order to sign a lease today is usually preferable to waiting for another prospective tenant to surface who may be willing to pay the asking price.

To get the landlord’s true sense of urgency, ask questions. How long has the space been available? Do you anticipate additional vacancies, and when? What incentives are being offered? Is the property for sale?

Don’t stop looking. Continue to identify suitable properties throughout the entire negotiation process and negotiate simultaneously on multiple spaces. Having viable back-up sites gives you the best possible bargaining leverage: the ability to walk away from an indifferent or uncooperative landlord or agent.

Also, don’t think for a moment that a landlord is negotiating only with you. Unless agreed in writing to the contrary, and until a lease is signed and money changes hands, either party may generally walk away from the transaction without incurring monetary penalties.

Landlords have advisors. Tenants need advocates. Because tenants and landlords have opposing interests, and the amount of money at risk in even the smallest of commercial leases can be significant, negotiations for real property are adversarial. However, that does not mean they must be confrontational. Recognize this and consider retaining an experienced real estate advisor who pledges to be a tenacious advocate for you, and protect your interests above all others.

Stephen A. Cross, CCIM, owns CROSS Commercial Realty Advisors and advocates exclusively for tenants and buyers. Contact him at 480-998-7998 or steve@crossrealty.com.