In the month of May this year alone, I spent hours touring commercial properties with firms that have been shocked with their lease renewal offers. In some cases, renewal offers have increased rents by 25 to 30 percent – and this is on top of annual rent increases of three percent during the prior term of the lease. Certainly, this type of unplanned expense can create havoc with a company’s fixed costs projections and negatively impact profitability. Let’s look into how this can happen and how you can help protect yourself from it happening to you.
Navigating Renewal Offers
Many tenants will request a renewal right in their initial lease, as well as any subsequent renewals. The tenant will try to negotiate some sort of renewal rent increase cap and if they can achieve that with their landlord, good for them. However, in many cases, landlords will only offer renewals at fair market value. This is most common with landlords in markets where activity is high and rents are trending upward. When renewal rights are linked to fair market rent, company management needs to be very mindful to be watching the markets they operate within.
Looking Ahead
Knowing what to expect far in advance of your renewal date can give a company precious time to help plan their renewal strategy well in advance, which allows more options to be considered. Just knowing that rents are going to take a big jump won’t soften the impact in all cases, but it will allow management to help plan better and think further into possible alternative solutions. It’s possible that a more global solution might be best, rather than just trying to get a reluctant landlord to lower a renewal offering.
If your company is not receiving quarterly market updates that accurately track vacancy, rents and other critical tenant-centric factors, get in touch with an experienced agency that you can trust and get their reports. Miller Industrial properties publishes the most comprehensive quarterly reports for the northern Nevada industrial market and share our reports with several hundreds of interested tenants in the area. You can find these reports, and other useful information on our Resources page.
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