Renewing a Commercial Lease? | 4 Key Questions to Ask First

With the average commercial lease 3 to 5 years long (and some out to 10 years!), renewing a commercial lease can be a huge decision for a business. 

Before taking the massive step of renewing a commercial lease, business owners should ask some key questions to confirm that a lease renewal is their best option. 

In the following article, we’ll outline 4 questions and some lease renewal options business owners have at their disposal.

Question 1: Does the Renewal Rent Fit our Budget?

This is absolutely the first question that commercial tenants should ask.  In expansionary economic times, commercial rents typically rise - sometimes significantly - and a renewal option increase could drastically undercut a business’s bottom line. 

This is where it pays off to work with a commercial broker.  Brokers can assist with in-depth market analysis to determine A) market trends, B) comparable rents, and C) alternatives to your current situation. 

Even if you decide to stay in your current location, this broker-provided information can provide you the information to negotiate a renewal lease acceptable to your budget.

Need recommendations on local commercial brokers? Drop us a note!

Question 2: Does Our Current Layout Meet Staff Needs?

Successful companies fundamentally understand that, if you take care of your people, your people will take care of your company. 

Recognizing this reality, before renewing a commercial lease, businesses should have a solid understanding of their staff needs. 

Do you have an extremely noisy sales floor that distracts your sales team? 

Do you need more collaboration space for teams?  

The answers to these questions will be different for every company, but the important takeaway is that, prior to renewing a commercial lease, you should gain a thorough grasp of your staff needs - and whether they’re being met with your current space. 

Question 3: Does Our Current Layout Meet Our Organizational Needs?

Directly related to Question 2, this question takes a step back to look at the big-picture business needs of your organization, both current and future.

Where do you see your headcount in two years?  Does this lease support those needs?

Where are your target customers?  Are you close enough to support their needs?

Do you need external infrastructure support (e.g. highway access, port facilities, etc)?  Does your current situation adequately provide that support?

Once again, the answers to these questions will be unique to every organization, but businesses should conduct some serious self-reflection about whether their current location truly meets these needs, or if the company has simply been settling in the current lease. 

Question 4: Does Our Current Layout Still Define Our Vision and Core Values?

In today’s social media-centric world, businesses cannot afford to appear dishonest or insincere.  One step outside of a company’s stated values can lead to a viral online backlash with the potential to crush sales. 

If a company states that environmental sustainability is one of its core values, should its offices be in a building kicking out tons of unnecessary carbon emissions?

If a company sells itself as an innovation leader, should its offices be in a bland office building?

If a company sells camping gear, should its offices be located in the middle of an urban sprawl? 

The above are no longer hypothetical questions for businesses.  Bottom-line considerations dictate that a company’s offices need to 100% align with its stated vision and core values.  

Additional Commercial Lease Renewal Options

●      Refurbish: It’s possible that your current situation supports your budget and organizational needs, but the layout just doesn’t support your staff needs.  In these situations, it’s possible to negotiate an interior rehab into a lease renewal.  However, this option will also likely temporarily disrupt operations during the rehab process. 

Need recommendations on how to effectively negotiate a refit with your landlord? Drop us a note!

●      Move: An obvious alternative to a commercial lease renewal, tenants can always move to a new location.  This may offer an opportunity to increase efficiencies and potentially further support your company’s brand and core values.  This too, though, will lead to an inevitable disruption in operations. 

Numerous considerations exist for commercial tenants seeking new space, so please drop us a note for help with a needs assessment and market analysis. 

●      Combine operations: A lease renewal decision can provide an opportunity to improve company efficiency.  If you have multiple spaces, combining them into a single one may allow fiscal and operational efficiencies through the elimination of redundancy, and requiring a larger footprint may provide you the leverage to negotiate better terms with your landlord. 

●      Split operations: Efficiencies can also be achieved by splitting operations.  Many companies secure expensive leases in high-rent districts to support the needs of a sales staff.  However, if the back-office personnel can perform their work anywhere, there’s potentially an opportunity to lease a smaller, higher-rent space for sales staff and a larger, less expensive space for back office personnel. 

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We recognize that, even after outlining the above information, tackling the challenges of commercial leases can seem daunting.   

That’s why we’re here to help.  The Pocket Broker team lives and breathes commercial real estate, so drop us a note to see how we can help you achieve your unique objectives!