If your commercial lease will be renewed in 2018, tenants need to start to prepare now for what’s in store for them. The real estate market has dramatically shifted, and landlords are positioned to extract the most benefit out of the new conditions. Tenants wh0 are not well prepared for the renewal process may find themselves shocked when they learn what’s in store for them. The lease renewal process has shifted gears, and only tenants who have prepared themselves for the changes in the renewal process should plan to navigate the renewal transaction with minimal disruption to their financial plans and budgets in the future.
What’s Changed?
Several factors have come together to result in the significant changes in the position the landlords are taking with their renewing tenants today and certainly will continue into 2018. One is the very high market velocity with high absorption. Those are fancy terms meaning there is a lot of activity within the market taking available space. In other words – high demand and high numbers of deals. That high demand has resulted in a very low vacancy. Low vacancy always results in higher rents. So tenants can expect higher rent rates on their renewals. But how high?
Higher rent hikes are not the only factor that tenants will be facing. In some cases, other factors can actually be more challenging to a tenant’s business plans than a jump in their rent. Our firm has been working with tenants in northern Nevada since 1991 and we have never seen the types of added burdens that landlords are putting on renewing tenants. This year to date, we have successfully renewed over a dozen tenants. While while the renewals were successful for the tenants, the renewals were somewhat lengthy and challenging.
Adding to the mix of variables is the fact that there are several new landlord owners who have planted their flags in northern Nevada. In many cases, tenants pay their rent to their property managers unaware that their property ownership has actually changed hands. These new landlords commonly are focused on ‘pushing the rents’ on their newly acquired assets to show their investors they can squeeze more juice from the same amount of fruit and do a much better job of doing it than the old owners did. One guess where all that added juice comes from.
Your lease dictates how many of these new factors will apply to your situation. If you glean nothing else from this post, be clear that the best thing you can to prepare is by having a professional read your current lease and advise you of your rights, options and duties of notification. This is a critical first step. Getting a leasing professional involved with your renewal 12 months in advance is not too early in today’s landlord friendly market environment.
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