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.
AQUILA brokers have managed hundreds of lease renewals and, in the process, have learned valuable tricks for creating leverage in order to secure more favorable renewals. So, we put together a list of some of the most important reasons you should hire a tenant representation broker to help with your lease renewal:
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.
Using a tenant representation broker to assist with the site selection process is important, as we outline in our article: 7 Benefits of Hiring a Tenant Representation Broker.
Going through the site selection process and considering other viable options can give you the best chance to gain concessions since you have “one foot out the door.” The goal of the tenant representation broker should be to find an alternative so that their client becomes indifferent to staying or leaving, thus creating leverage for negotiations.
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.
Additionally, they can help you evaluate your current location by offering services such as Center of Gravity mapping, which can help you assess where is an ideal location based on where your employees and/or executives live.
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
Because of these factors, the tenant should see a benefit.
A tenant representation broker is not only aware of these facts, but can accurately calculate how much of a benefit you, the tenant, should be able to realize because of this, which can help make for more impactful negotiations with the landlord.
Additionally, when renewing, there is an opportunity to make changes to the original lease and possibly re-address old lease terms in your favor.
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 Austin, landlords usually 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%.
To better understand how broker commissions work, read our articles:
- Cost to Hire a Commercial Project Leasing Broker
- How Much Does it Cost to Use a Tenant Representation Broker?
In the end, running through the full process with the help of a tenant representation broker will help you secure more favorable economics than you can by negotiating on your own. Landlord concessions change over time and we want to make sure our clients achieve the most concessions available. And, sometimes you may actually find a new space that better fits your needs and end up moving after all.
What if I already have 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 similarly to the way a new deal would be.
If you have an upcoming lease expiration or renewal option, an AQUILA tenant representation broker would be happy to meet with you to discuss your potential options. Reach out today to schedule your consultation with the AQUILA team.
And it’s never too soon to start thinking about your lease expiration. Our experts recommend beginning to think about your renewal options three years before your actual expiration. This allows you the flexibility to leverage all of your options and land the best terms on your next lease.
- 7 Benefits of Hiring a Tenant Representation Broker
- What is a Tenant Representation Broker & What Do They Do?
- The Ultimate Guide to Hiring a Tenant Representation Broker