Negotiating Tips for Renting Space During a Pandemic
August 27th 2020
It’s no surprise that the pandemic, coupled with governmental stay-at-home orders, has dramatically impacted the commercial real estate market. While some organizations are realizing they may have more workspace than they need and are considering downsizing, other companies are strategizing how to negotiate or renegotiate new or existing leases.
According to Andrew Weinberger, founder and CEO of PropertyClub, “It’s a great time for small business owners to rent an office or retail space.” That is, if your business is looking to expand, you may now have an opportunity to lease space you would never have been able to afford previously. “The COVID-19 pandemic has put a tremendous amount of strain on commercial real estate landlords, with vacancy rates rising and prices dropping significantly,” Weinberger observes.
Small Businesses Are in the Driver’s Seat
“The disruption to the supply and demand within the real estate market has created a situation where prospective renters have a great deal of power,” says Nishank Khanna, CMO at Clarify Capital. “With increased available real estate, small business owners are positioned well to negotiate. Similarly, property owners are more likely to extend some flexibility and work with renters in order to make a sale.”
The key is to first think about what you need space-wise, and what you may need in a year or two. If you anticipate requiring more space, or less, you’ll want to build in flexibility to your lease agreement, so that you’re not stuck paying for space that isn’t supporting your business.
As you begin conversations with brokers and property owners, consider trying some of the following strategies to get the best deal:
Ask for free rent
Rather than asking landlords to drop the per-month lease rate, ask for several months of free rent on the front end of a new lease, recommends Sharon Simmons Cantrell, shareholder and attorney at Simmons and Fletcher, PC.
“Landlords are losing tenants left and right to businesses closing. If they lower the rent, that sets a new baseline for all future rent negotiations on all that empty space they are trying to fill,” Cantrell points out. “Landlords are often more willing to give you free rent for a set period of time and then have a higher per-month rental rate afterward than to give you a lower rental rate and potentially lose money every time they have a lease come up for rent. So don’t be afraid to ask for six months’ free rent versus a rent reduction,” she says.
“Agreeing to speed up the process and sign on immediately, so long as specific term or concession is included in the lease agreement is a smart negotiating tactic,” says Khanna. “This is because some landlords might believe the value of an immediate sale outweighs the profit loss of a negotiated term, when considering the time and effort it takes to pursue prospective tenants.”
Push for a shorter lease term
“Shorter lease terms will allow you to break out of a contract if you need to,” says Rex Freiberger, CEO of Discuss Diets. “If all your workers have to be remote for months, it may sink you financially to keep paying into a lease…being able to break a lease could save you tens of thousands of dollars, if not more.”
Negotiate for reduced late fees
“Most property owners won’t waive them completely, though you may be able to get a longer grace period,” Freiberger says. “What you should focus on is cutting those rates, ideally in half if you can manage it. That way if you have to be behind for any reason, it won’t hurt you any more.”
“Right now there is more room to negotiate when securing rental space,” says Kimberly Porter, CEO of Microcredit Summit. “Make sure you talk with your landlord about options and if paying ahead or early could provide you with even more of a rate drop.”