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Renew That Lease? Hughes Marino Reveals How Companies Should Decide

Hughes Marino’s team knows that when it comes to leasing or buying, tenants should know their options. Hughes Marino Senior Vice President Gavin Curtis says tenants have more power than they think.

“The reality is that landlords are avoiding risk when they can sign a tenant renewal,” Curtis points out. “A landlord facing a tenant who is leaving their property will undoubtedly experience extensive and expensive downtime between one renter’s vacancy and the next occupant’s lease start.”

The Seattle-based executive explains that this increases marketing and advertising costs in addition to improvement expenses to the space, primarily since many new tenants will not lease a space “as is.”

He adds that tenants can end up with a unique advantage during negotiations, since the landlord will likely need to pour capital into improving the space to meet a tenant’s needs.

“While 80% of tenants end up renewing their existing lease, at Hughes Marino, a tenant’s current situation is not a default position but rather a starting point for finding clients the best possible outcome for their business, team, and culture.”

Why a Tenant Improvement Allowance Matters

“If you’re engaging in a build-out, make sure that it is fully priced before signing the lease,” says Hughes Marino Senior Vice President and Director Star Hughes-Gorup. “Likewise, be sure you clearly understand your tenant improvement allowance. If necessary, have a construction manager or contractor come and price it out for you personally.”

Hughes-Gorup recommends having an expansion clause in the lease in case a tenant outgrows the space. “This clause can be written so that if there is no space available for expansion, then you have the right to terminate the lease,” she adds. “It’s a win-win.”

Hughes Marino: Tenants Should Have a Trusted Broker

Hughes Marino offers complimentary consultations on commercial lease restructuring and negotiations. “In the current business climate, landlords are eyeing long-term leases,” Curtis explains. “Every business case is unique and requires a custom approach.”

The company also offers lease audit and administration services to ensure tenants are not being taken advantage of by landlords. Getting locked into lengthier leases is also a thing of the past since the COVID-19 pandemic rocked the commercial property market. Hughes Marino’s team says in lieu of seven-to-10-year leases, three-to-five-year lease agreements are popping up.

Hughes Marino Advises Leaving Ample Time To Discuss Leasing Options

When preparing for a lease renewal or a relocation, Curtis suggests business owners with a renewal clause check out their options 12 to 24 months before a lease expires. “Our tenant representatives tour clients through multiple properties vetting space options, amenities, terms, and rates even if they ultimately decide to move forward with a lease renewal,” Curtis says.

There is a delicate balance between starting the process too early and getting to the party too late, according to Hughes Marino. The team points out that without leaving enough time to shop options, a tenant could miss out on an opportunity to relocate, resize, and potentially save money.

According to the company’s Portfolio Lease Administration and Advisory Team, January can be a dicey time for tenants and they should be vigilant of landlords unexpectedly increasing operating expenses for the upcoming year.

The team urges tenants to notice if expenses have gone up more than 3% and if so, to question why.

Curtis also tips that tenants should be armed with information before inking a deal.

“Tenants who enter into a transaction dialogue without market intelligence are asking for an unfair deal,” Curtis says.

Curtis also mentions that tenants must be ready to be competitive and informed when they sit down for negotiations, which is something Hughes Marino’s team preps them for.

Don’t Settle For Asking Rents

 “We believe that a tenant renewing a lease should never pay the full asking rate, period,” Curtis says. Curtis and the tenant representation team says it’s important to get to the landlord’s bottom line and understand that commercial real estate continues to be an unregulated industry and there’s a record amount of sublease space on the market. “The number one message for tenants is that they have options,” Curtis concludes. “And a lease renewal is not necessarily the best deal.”