Getting the right space on the right terms means getting started at the right time.
By Jim Schnur, CCIM
President and Managing Broker
Integrated Real Estate Solutions
Perhaps the biggest mistake companies make in leasing, buying, or building is not allowing enough time for the search process. Simply put: Finding the right space for the right terms takes time.
Whether your space is manufacturing, distribution, or office doesn’t matter. The time your broker has, or doesn’t have, to do the job well can mean trouble, opportunity, or simply settling for “so-so” space that’s not big enough, configured the best way, or in the best location. No business owner wants to suffer through a costly and disruptive move for so-so results.
What’s best? For most office and industrial transactions, commercial real estate brokers like to have at least nine to twelve months to do their job effectively for their client. (Figure in another six to twelve months to occupancy if you’re building from a stake in the ground.) Numerous variables are in play. Optimizing one might prevent the optimization of others or eliminate options. Decision-making time is key.
In a lease negotiation, for instance, the closer you get to renewal the more leverage your landlord has. Creating a competitive environment for your business to get the best terms, which is part of your broker’s job, is nearly impossible in two or three months. That means higher rent, fewer concessions, and, quite possibly, missed opportunities.
More subtle advantages can be negotiated the better we know your business and its goals.
For instance, one of our clients planned to expand in two or three years. He liked the building and didn’t want to move when he needed to grow. We were able to negotiate a right-of-first offer option. If appropriate space opened up, he would have the opportunity to take the additional space and not have to move. Another client envisioned reducing its footprint during the lease period and benefited from a “contraction” option. That allows a tenant to decrease the amount of leased space within the lease term.
In another engagement, a professional services firm alerted us 15 months before it needed to be up and running in a new, smaller space. That lead time enabled us to serve the client well—very well, in fact.
After defining space requirements, design elements, and business goals, we surveyed the market and identified three suitable submarkets. We managed site visits, evaluated the sites, created a comprehensive RFP (request for proposal), and distributed it to all suitable properties. By keeping all three submarkets in play, we negotiated the best possible terms. Not being in a rush increased our chances of selecting and securing the best property for our client. And we had time to negotiate further on the final lease and monitor the build-out of the space.
The results? Our client reduced its space by half, relocated closer to its customers, and lowered its rent by $150,000 per year for seven years. In this case, we didn’t help our client determine exactly how much space it needed, though we could have. But we were able to get much better terms because we had time to get to know our client well and then identify and pursue all potential benefits.