After assisting hundreds of clients with their lease renewals, our AQUILA tenant rep team knows the value that can be achieved by going through the process early. We also know that renewing early isn’t the right decision for every company.
In order to help you decide what the right timeline is for your company, we’ve put together this list of three reasons to (and three reasons not to) renew your lease early.
When to Renew Your Commercial Lease
The Standard Lease Renewal Timeframe
Renewals are typically speedier transactions than signing new leases, but it is still recommended to go through the process of surveying the market to best understand the deal points of a renewal (and gain the most leverage from your landlord).
In order to allow for time to go through the market survey process and to negotiate your new lease, typical renewal timelines follow this general timeline:
- For tenants over 25,000 sf, 18 – 24 months is considered normal given the low inventory of available spaces at this size.
- For tenants in the 10,000 – 25,000 sf range, it is standard to start the renewal process about 12 months prior to expiration.
- For tenants under 10,000 sf, the process typically begins 6-12 months before your lease expires.
What it Means to Renew Early
Early can mean different things for different tenants. Typically, larger tenants need to start the renewal process sooner than smaller tenants.
Depending on your size, an early renewal might mean speeding up the above timelines by 3 – 6 months, but can in some cases mean accelerating the timeline by multiple years.
Three Reasons to Renew Your Lease Early
1. To Lock in Your Rental Rate
If your are in a competitive real estate market that shows no signs of slowing down, it can be a savvy move to renew your lease early and lock in the current rental rates, rather than the future rates that will likely be much higher.
Over the past eight years, Austin rental rates have done nothing but increase. And from the looks of it, rates will continue to climb for the foreseeable future.
For more on Austin rental rates and projections, download our free comprehensive Austin Office Market Report.
By renewing your lease early, you can lock in today’s lower rates so your business isn’t faced with higher market rates years down the road when your renewal options actually hit.
2. To Get Tenant Improvement Dollars to Renovate Your Space
If your office space is in need of renovation, beginning the renewal process early may give you the leverage required to negotiate the tenant improvement (TI) allowance you need.
A tenant improvement allowance is money from the landlord that you, the tenant, can use renovate your space.
By renewing early, you may be able to negotiate a TI allowance that will give you more opportunity to renovate and improve your office space to better fit your company, without coming out of pocket for the expense.
Typically, less TI is allotted for renewals. However, landlords value when keeping their buildings occupied and avoiding any potential time vacant. By ensuring the landlord early that you will stay in your space, they may be more likely to give you concessions such as a TI allowance during your renewal in return for additional lease term.
Additionally, your tenant rep broker may recommend you look at other spaces on the market in order to create leverage. Your landlord may be more likely to alot you concessions in an effort to keep you, if they think there is a strong likelihood you will vacate at the end of your lease.
3. To Expand or Right-Size Your Office Space
If your company is growing at a quick rate and you need to expand your office space to accommodate all of your employees, then renewing your lease early might be the right choice for you.
Often, it makes sense to renew your existing lease at the same time you expand into additional space, in order to make the leases coterminous.
Assuming the landlord has the space for you to expand, this could be the perfect solution for your growing company. It takes away the inconvenience of relocating and might even get you a good deal on the rate of the expanded portion of the office.
Additionally, if you’ve recently downsized or your company has not grow as quickly as you had previously anticipated, and you no longer need your full space, a savvy tenant rep broker may be able to work with the landlord in order to help you right-size your lease during an early renewal. If this can be negotiated, it can help you save thousands of dollars in rent on unused space.
Three Reasons Not to Renew Early
1. To Receive Lower Rates in the Future
If you are currently paying above market rental rates, and are in a market that is on the verge of slowing down, then renewing early might not be the best option for you.
If demand is starting to slow down, then rental rates may begin to decline in the near future. In this situation, it likely makes the most sense for you to wait to renew until after the market shifts in order to avoid paying above-market rates.
2. To Find a New Space That Can Accommodate Your Company Size
Let’s say your company is growing faster than you ever anticipated. Sales are going through the roof, and you need more employees to maintain the speed at which your business is running.
If your current office space cannot hold the number of employees you expect to have in the near future, and there will not be enough space available in your building to accommodate your growth, then you will likely not want to renew your lease early.
In this situation, you may still want to engage a tenant rep broker early in order to determine the best options for you. If you are open to having multiple locations, then you may want to renew this lease and begin the process of finding a satellite office. Or, if you prefer to keep you office in one location, it is time to begin the search for a new, larger space.
Of course, this can work the opposite way too. If your company is shrinking and the landlord will not allow you to right-size now, then renewing the existing lease of the larger office space would be a mistake. Instead, it likely makes the most sense to sublease any excess space and either renew at a smaller size during your renewal period or terminate your lease and relocate to a location that better fits your needs.
3. To Find an Office Space That Better Fits Your Company
If you don’t foresee your office space as a long-term home for your company, and you don’t intend to remain in the space, then logically it does not make sense to renew early.
There are a number of reasons that you might want to move office spaces. These may include, but are not limited to:
- Location: You might want to find an office that is more convenient for your employees or your customers. Or maybe you’re sick of the congestion in your area, and would prefer to relocate to a more scenic location in the suburbs.
- Amenities: If your office is in an area that doesn’t have any good lunch spots, and you’re tired of eating that same homemade turkey sandwich everyday, you may want to find a new location with plenty of surrounding restaurants or an on-site cafeteria.
- Parking: Parking in Austin is a hot commodity, if your company has high density, you may be running into parking constraints at your current office and need to find a location with more flexibility.
- Rising Rental Rates: Many companies are beginning to look to Southwest Austin or The Domain as an alternative to Austin’s CBD, as the rental rates have risen so dramatically that they cannot afford to renew at the new market rate.
What This Means for You
Renewing your lease early can give you the satisfaction of having an office space for the future. It can save you money if market rates are increasing, can lead you to receiving a larger tenant improvement allowance, and may even be the right solution for an expansion if you have one planned. However, it’s not for everyone. Companies that have higher than market rental rates, are growing at a rate their landlord can’t accommodate, or do not see their current office as a long-term home should not consider renewing their lease early.
A qualified tenant representation broker can help you evaluate your company’s specific situation, and determine what approach might be right for you.
To speak to one of our tenant rep experts, schedule a consultation today.