We often share tips with our clients on how to renegotiate a lease for more favorable terms. But even before you start thinking about renegotiation strategies, you need to decide if you want to stay or go.
The answer to that question may come down to identifying the Total Cost of Occupancy, a step in the process that is often overlooked and miscalculated. Let’s take a deeper dive to help you think through the considerations.
Identifying the Total Cost of Occupancy
Moving can be complicated and often costly. However, companies choose to relocate for a variety of very important reasons. The most popular reasons to move include reducing or increasing the space, trying to reduce lease costs, or simply that the current location or space no longer meets the company’s needs.
If your space is too small, too large, poorly configured, poorly finished, or employees are working remotely, the decision to relocate is fairly simple. Or, if you identify a building that meets your needs and rent is less expensive, that can spur the discussion to relocate.
“A lot of companies seem to focus their decision on whether to stay or go based on the monthly rent and the dollars per square foot,” said Nick Weis, Managing Broker of Suburban Real Estate Services. “But that is a mistake. They don’t take into consideration the total costs of occupancy, which may negate the perceived financial benefit of moving.”
The Total Cost of Occupancy can add up to be a large cost and blindside companies after they have signed a lease. Some of the forgotten costs to relocate include:
Financial – New letter of credit or security deposit needed; cost associated with breaking an existing lease,
Infrastructure – Additional wiring and installation needed for electric, phone system, or IT network needs
Marketing – Signage for the new space and other marketing costs (new business cards, letterhead, website, social media updates, etc.)
Moving – Movers and/or space reconfiguration costs
Equipment – New furniture expenditure and/or decommissioning and disposing of old furniture
Lost productivity – During move days or having to redirect internal resources to the move, instead of their normal responsibilities
The PITA (Pain in the Ass) factor – the hassle, the stress, and the extra work from problem solving and
But, don’t forget to analyze the cost of NOT moving. An organization should conduct an analysis to determine the financial cost (actual and perceived risk) as well as any other organizational and economic impact of not relocating. The numbers could surprise you.
You need an expert to help navigate the entire process. “From objectives to strategy, to space programming, to location selection, to business and legal considerations, to furniture, to IT, to relocation, and ultimately to post-occupancy monitoring, we have 30+ years of experience and knowledge to help shape the decision process,” said Bryan Barus, President and Designated Managing Broker of Suburban Real Estate Services.
Weis added, “A huge positive is that it’s still a tenants’ market. Keeping your best interests in mind, we know where we can negotiate with landlords to either help you stay or help you move. It’s common for a landlord to offer a relocation package or a moving allowance to entice a tenant to move into their building but an incentive may be required by a landlord to retain you as a tenant.”
Landlords don’t want empty space, which is an advantage for tenants. “It is not uncommon for us to renegotiate a client’s lease well before the scheduled expiration. In one such case, a client was leasing 5,000 square feet and had almost two years remaining on the lease. Space utilization was significantly reduced, primarily because of work-from-home practices. We were able to negotiate a “blend and extend” where, in exchange for an immediate reduction in square footage, a reduction in rent, and select tenant improvements, the client agreed to extend its lease. It was a “win” for all parties,” Barus explained.
Since 1991, Suburban Real Estate Services has been helping clients lease, buy, sell, and manage commercial real estate. Let’s find out how we can help you.