Commercial leasing is a complex business. Understanding terms, finding the right properties, negotiating the best short or long-term deal possible is all complicated by the detailed financial and legal processes that have to be secured along the way. Without the aid of a professional broker, tenants can find themselves locked in a long-term deal that doesn’t work all because of some common leasing misconceptions.
#1: Trying to Lease in Retail is Futile
Unless speaking of online retail, the industry has taken its lumps over the last couple of years, leading many to believe that trying to lease retail space in this climate is futile. As of last year, nationwide rents climbed to nearly $17 PSF – higher than at any time in the last decade. Even mall retailers saw close to 30% rent increases from 2016 to 2017.
#2: Your Leasing Options are Non-negotiable
When the markets change – either decline or excel – renewal options become determinant to how you will proceed during negotiations. At the start of a lease, you negotiate extensions, renewal options, and rate increases. Your landlord will want to charge X, you have the right to negotiate Y.
Nothing is set in stone until all parties have signed on the dotted line. In a renewal, if you’ve been a good tenant, you can push for incentives and inducements to entice you to stay in your lease. Having a skilled broker that knows the market climate can help make the case for improvements, inducements, rent reductions, etc.
#3: A Landlord Can Charge Whatever They Want
Some tenants get into commercial leases thinking that the rates will stay about the same. Landlords go in expecting to increase rates according to inflation – but what inflation? Economic headwinds affecting one part of the country may not be affecting another. Instead of simply accepting a regular increase, factor your rent against your local inflation rate and not the national Consumer Price Index.
#4: Going with Green Leasing Will Cost You Money
Finally, today’s tenants are looking for greener commercial buildings. At the same time, the amount of work it takes to meet the many different standards has been cost-prohibitive. Leased commercial buildings make up a majority of leases and use up to 36% of all of the electricity used in the U.S.
Green buildings are just the first step. There are companies out there aiming for Net-Zero Energy (NZE) use in commercial leasing. A big myth about NZE buildings is that you won’t get the same returns as you would in a non-NZE building.
Green builder RMI leased its first NZE building in Colorado a few years ago. It was the company’s chance to prove that NZE buildings work for all companies and not just eco-activists. The truth is, NZE buildings are yielding nearly 20% more ROI in the long term and 17% more in the short term.
Occupancy rates are at least a few percentage points higher compared to less efficient buildings. Building owners are able to charge more for NZE buildings than those backed by Energy Star and far more than traditional buildings, especially as millennials continue to take over the workforce.