Many of us know that both residential and commercial real estate values have plummeted over the last few years. But retail lease rates in the prime shopping centers in Southern California have not. If you are able to lease general office space you should be aware that weak space absorption in many local markets still show close to 20% vacancy and the conditions provides tenants enormous leverage. Two small 5,000 square foot leases completed in the past 6 months showed rental reductions of over 20% plus other concessions in tenant allowance.
If you are located in second tier “retail” space off the main and preferred thoroughfares, rents have indeed decreased over the past few years. In any case you should always review the lease with a real estate professional about 1 year before your renewal date to consider how to improve your lease terms.
There is much more to negotiate than the rental rate. Options to expand or extend are key provisions to improve and so is the annual escalation rate that should be capped.. It also may be time to consider if the HVAC system needs a capital repair or request a better monument sign or it may be time to re-carpet or re-paint the premises. Address some of the lingering issues of common area maintenance, such as landscaping or the deteriorating of the parking lot and whether the management fee is still reasonable.
Business owners want a lease that is reasonable and competitive since occupancy expenses generally are their largest expenditure after wages and salaries. If you have been in the facility for five or more years it is certainly time to consider more energy efficient lighting as energy prices will continue to escalate 5% or more annually and the payback on changing light fixtures can be surprisingly short: The older and the larger the facility, the faster the payback period. It is also a “green” and sustainable energy practice you can promote to the community and customers.
It is both costly and disruptive to relocate. It also can impact your customer base, but if you have considered a better location, it is best to start looking early and finding a local real estate broker to assist you. The key is finding someone knowledgeable in the local area real estate and that you have confidence in.
Reality is that you probably have a history with the landlord and hopefully it has been positive one with a long history of stability and a good payment history. Use your history as leverage and by all means check to see what the local market rental rate is by calling similar buildings or shopping centers in the area to obtain facts on what the market rents are. I believe in finding a commercial real estate professional to assist you especially if you have concerns with the lease or difficulties with the landlord. Check your lease and start negotiating early!