How to weigh the options of renewing your lease or relocating

Eliot Kijewski, SIOR, senior vice president, CRESCO Real Estate

Eliot Kijewski, SIOR, senior vice president, CRESCO Real Estate

Until the middle of 2011, northeast Ohio was a tenant’s market. However, with real estate growth, free rent incentives and large price drops going away, the market is starting to lean more toward landlords, says Eliot Kijewski, SIOR, senior vice president at CRESCO Real Estate.

“I can’t tell you how many times we get a phone call saying, ‘I need to be in something in 30 to 60 days,’” Kijewski says. “That’s not enough time when you’ve still got to negotiate a lease and the landlord generally has work to do in the space.

“You need to be in front of it. You can make your best deal that way,” he says.

Smart Business spoke with Kijewski about how business owners can maximize the value of their renewal or relocation.

What should you consider when deciding whether to renew your lease or relocate?

First, reread your lease to find out what your timing should be. You need to know the option date, if one exists, in your existing lease. It’s most likely six months, but in some cases it could be 60 or 120 days. For instance, if you’re coming to the end of a five-year lease and you have to notify the landlord whether you’re going to stay six months from the lease-end date, you’d better see what else is out there — check out pricing and deals, the size and efficiency of available space, etc. You want to be in the market at least four months ahead of your option date.

Ninety percent of landlords are still going to do whatever they can to keep a tenant, such as throw in tenant improvements or be flexible on the rate. The difference is that, as the market tightens up, landlords are starting to look at the option date because they may have been giving deals away a few years ago, but now they could get another tenant in for more money.

How should you weigh your existing space against the available space?

With the help of your broker, there are a number of questions to ask that take into account your long-term goals. Is your existing space too big, too small, not heated properly or not meeting your technology needs? Did your business model change? Are you comfortable here?

It’s imperative to actually check out the market. For example, if you move one city over, your taxes could be dramatically less.

A tenant representative can generate data to help you feel confident about staying or leaving by looking at employees, governmental incentives, etc. Employees really care about where their workplace is located; so if you move to the best deal, you might lose employees.

How can business owners account for the costs?

Remember that it costs a lot of money to move — no matter what business it is. You have to pay a mover, or do it yourself, which doesn’t allow you to do your work. Then, you’ll need new stationary printed, websites and phones updated, etc. Based on what type of tenant you are — industrial, office or retail — your broker can assist with estimating these types of costs.

At the same time, it costs the landlord as well, which gives tenants leverage. If the space goes ‘dark’ or vacant, the landlord has to prepare the space with cleaning and/or renovations, promote the space and hire a broker.

What’s important to know about the negotiations?

A lease is a huge commitment. For example, if you’re coming to the end of your term, you may have a clause that says you have to renew for a certain amount of time. But, if you’re uncomfortable, don’t let your company become a captive tenant. This can be negotiated with your landlord with the help of your broker.

Your broker is critical to informing you of the various circumstances with the existing landlord and the surrounding market. He or she also can help with timing the negotiations correctly. You want to start that conversation with the landlord close to the option date, but not close enough that it jeopardizes your leverage.

Eliot Kijewski, SIOR, is senior vice president at CRESCO Real Estate. Reach him at (216) 525-1487 or [email protected]

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