Empty offices and vacant cubicles are bad for morale and worse for profits. Greater efficiencies resulting from new technology and the Great Recession have left many companies with superfluous office space. Adding insult to injury, these companies are often locked into leases with rent rates that are significantly above the current market rate. Though it is hard to escape the contractual obligations of a commercial lease, there are ways to mitigate the cost of unused office space.
Blend & Extend
Tenants with good credit and two years or less left on the lease may have the opportunity to negotiate better terms if they agree to extend the lease for an additional three to eight years (known as a ‘Blend and Extend‘). In exchange for the term extension, tenants can push for a reduction in space and/or rate. Landlords usually prefer a long term lease, but the negotiation will be a give and take; if the tenant reduces space, the landlord will likely insist on a premium in the rent to offset the space reduction.
Subleasing or negotiating lease terminations are viable options for many companies. New or smaller companies seek sublease opportunities for the cost savings. Lease terminations are costly, but in some cases they make economic sense. Tenants considering a sublease or lease termination should consult with a tenant representation broker to perform a financial analysis. The Landlord may have another tenant to absorb the space, which if properly negotiated can mitigate the termination cost.
Alternative Office Strategies
Reevaluating the space design of your office may yield a significant size reduction. Tenants should consider telecommuting and/or hoteling as a suitable alternative for some of their workforce, particularly the sales team. Office users should also consider shifting to a higher density open floor plan and eliminating rarely used support spaces. Reducing the size of the floor plan will yield significant cost savings.
Surprisingly, companies with large real estate costs often do not have all of their leases in one place, organized under one system. Lease administration can pose a financial and administrative challenge to companies with widespread operations. Reliable lease information is the foundation of a strong real estate strategy. Complete financial data and critical dates allow the tenant to plan strategically, take advantage of opportunities, and reduce risk.
Companies can improve the bottom line today by evaluating their real estate costs. The first step is to consult with a real estate adviser who has the technical skills, experience, and focus to answer your questions.
At Golden Group Real Estate, we specialize in tenant representation real estate services for office space users in the Chicago area, helping local business owners find office space and negotiate lease and purchase agreements. We never represent landlords, so we are prepared to negotiate aggressively on behalf of our tenant clients.
For more on Golden Group Real Estate, read about real estate services. Let us know if we can help you find office space for rent or buildings for sale. Call us at (630) 805-2463, email us at email@example.com, or enter your office space search criteria below.
June 19, 2019
The RENT blog gives you the resources and tools you need to make the best decisions regarding your real estate needs. We cover a broad range of subjects regarding office space, tenant needs and what to look for when investing in property.
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