Can’t Negotiate Emotions-Have Landlords Dug Themselves into a hole?

Moving can be disruptive, painful and most of the time, expensive. If you are a tenant who is within 9-12 months of lease expiration it’s no surprise that you are getting a barrage of e-mails and phone calls from every broker within a 50 mile radius. All want to provide you with information on their listed property which they want to convince you would be absolutely perfect for you to relocate to or maybe you’ve heard from the tenant broker who is sure he/she can find a better space for you even though neither have any idea what the needs of your business are.

Our advice to our clients…”stay where you are.”

There are three main reasons to move. They are: 1) You have too much space 2)  you need more space or 3) the existing space is too expensive. The first two can be determined by a simply space programming matrix while the third is a bit more complicated. The standard formula for balancing revenue to rent is to look at gross revenues whereas rent should represent no more than 5%-7%. Start-ups may run a bit higher the first two years. Unfortunately, emotion sometimes fogs one’s vision.

There are two factors that have accentuation that premise. First, as mentioned earlier, you are probable getting a call a minute from brokers filling your head with information about the “Market” which makes it appear even more so that you may have a better deal out there and no matter what the4 landlord offers it’s too high. In all probability, particularly if you signed a lease pre-2008 then ANY deal would be better. Even your present landlord’s offering will likely be much lower than the pre-2008 basis. But here’s something we are seeing…

When times were bad, many landlords simply turned their backs on tenants when the tenant pleaded for relief. Their position was 1) you signed a lease…it’s a contract or 2) would you expect the landlord to raise the rents in the middle of the term if the market rates went up? Good argument in normal business cycles but what we went through in 2008 was nothing close to normal.

Many landlords worked with their tenants by doing either delayed rents or “Blend and Extends” which in both cases provided the tenant with some immediate relief while keeping the landlord whole. On the other hand, some landlords showed their tenants the sandbox and told them to start pounding 😦 . How unfortunate. Now when the lease is coming up for renewal, despite any aggressive rates being offered emotions set in and the tenants are fleeing.

One landlord we spoke with recently was proud of their 98% occupancy rate. I asked the CEO what he attributed this to and he simply stated that when times were bad we worked with our tenants and they appreciated it then and reflected in a high renewal ratio.

Lessons learned…from a landlord’s perspective you need to know that this is a partnership…can’t have a building be profitable without tenants…so working through especially troubling economic times with your “partner” is critical. Tenants, on the other hand, need to extract emotion from the equation. Things may have been tough for the landlord as well and they may have been under certain constraints that prevented them from modifying your lease. If the space works and the new value is in line with your fiscal plans, don’t let emotion play the big role…set it aside and analyze the options. Staying may be the best option.

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