Renting More Space | 5 Great Expansion Options

For growing companies that rely on commercial space, the idea of locking into a 10-year lease can seem seriously misguided.  How can you forecast operational needs that far in advance, especially with rapidly occurring changes in technology and automation? 

The Pocket Broker team recognizes how challenging it can be for companies to effectively match space needs with long-term commercial lease agreements, so we’ve written this article to provide you the information you need to successfully scale commercial space. 

Specifically, we’ll discuss the following five options for companies to expand their space footprints within the constraints of a long-term lease.

Option 1: Scale with Your Current Landlord

If you need to move your operations to access more space, it means your business is booming.  Wise landlords will jump at the opportunity to help you scale your space by moving within their current portfolios, as this means that they’re growing, too. 

Even in the midst of a long-term lease, larger landlords will recognize that a request for more space corresponds directly with more rent for them, even accounting for the portfolio disruption inherent to a commercial tenant move. 

Additionally, while larger landlords may not have an ideal space in their current portfolio, landlords with excess land would likely jump at the opportunity to develop a purpose-built facility with a guaranteed tenant. 

Need recommendations on how to effectively scale your space in conjunction with your landlord? Drop us a note!

Option 2: Design a Lease with Expansion Clauses Included

A draft lease agreement is malleable, that is, it can be designed to fit the needs of the landlord and tenant.  For a commercial tenant expecting future space growth - but not currently needing those levels - clauses can be crafted into a lease agreement that allow for space expansion.

While tenants can integrate a variety of lease clauses or thresholds to accomplish this flexibility, one of the more common - and effective - involves an operational trigger.  That is, when average tenant production hits X, an option (or requirement) to occupy Y space goes into effect.  

This sort of lease design is a win-win.  For landlords, there’s an incentive to help businesses successfully grow, as this growth will correspond with an increase in rented square footage.  For tenants, this allows for the flexibility to occupy the space currently needed, recognizing that growth will allow scaling. 

Numerous considerations exist for both tenants and landlords with these sorts of leases, so please drop us a note for help designing flexible commercial lease strategies.



Option 3: Sublease and Move

When a commercial tenant outgrows its current space, finding a new landlord may be the only operationally feasible solution.  However, tenants also don’t want to face significant charges or potential legal action for breaking a lease early.

In these situations - where no flexibility exists in the current lease - a tenant’s only option may be to sublease the current space and find a new one.

However, to successfully complete this option, tenants must A) conduct a successful market process to identify a new facility, and B) backfill their current industrial space in a timeframe that does not adversely trigger a lease covenant. 

NOTE: As every commercial lease is different, tenants should seek legal advice prior to committing to this strategy to ensure it doesn’t constitute a breach of contract.  

Option 4: Sublease Someone Else’s Excess Space

This is the “opposites attract” solution.  If your business is in a position requiring space expansion, there’s a high likelihood that another business in your area is on the negative side of that equation and requires less space than it's committed to in its lease.

In these situations, the company requiring more industrial space would sublease space from a company locked in a long-term lease with a surplus of space. 

While this is a solution, it’s not necessarily an ideal solution for all tenants, as it would require splitting operations between two spaces.  However, if your company’s operations allow for this sort of redundant set-up, subleasing extra space from another tenant can be an efficient - and potentially cost effective - solution. 

Option 5: Find a Short-term Solution

This option is related to the above technique of subleasing from another company with excess space, but this one involves your company acting as the original lessee at the expansion property.

While not necessarily a common situation, market dynamics occasionally create a situation in which an excess of short-term availability space is on the market.  For example, prior to recessionary periods, developers often apply to rezone space into residential, especially when dealing with historic tax credit properties.

However, upon a recession hitting, these developers often choose to wait out the economic cycle (several years) before executing the rezoning, leading to a situation in which space is available for short-term leases.

This sort of scenario may serve as a bridging mechanism for a company locked in a long-term lease.  Specifically, if a short-term lease on an expansion property can be secured through the end of the current long-term lease, tenants can find the space necessary to continue scaling their operations without needing to break their current lease. 

Ideally, the end of the current long-term lease and new short-term lease align, and upon the termination of both, the company can find a new property that supports its space needs.    

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We recognize that, even after outlining the above information, tackling the challenges of scaling space 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!