The lease renewal process can be a time consuming and repetitive task, often requiring a large percentage of corporate time. For companies with dozens or hundreds of employees, the challenges of managing the ongoing lease renewal processes can drain valuable resources that would be better directed elsewhere.
Following a traditional approach, large companies will manage the real estate lease renewals for each location in-house, based on the rationale that lease renewals are easy and inexpensive when managed internally, and that outside brokers will impede or cause problems with the process. But when you factor in the time for each negotiation, including internal staff discussions and meetings, research into current market values per location and the back-and-forth with the landlord’s agent, a corporation will quickly find itself extremely busy. And when nearly 100% of the corporate time and efforts are dedicated to lease renewals, the team is unable to focus on higher corporate priorities.
Companies often discover that time dedicated to lease renewals is better spent on strategy and that trusting the renewal process to a trusted advisor can free up scarce internal resources for maximum corporate benefit.
Selecting the Right Partner
Whether it is designing a new headquarters, IT, asset management, human resources or a new product line launch strategy, outsourcing discrete projects provides a neutral, outside perspective and allows companies to maintain focus on core business strategies while addressing internal needs.
Companies outsource every day – from accounting and administrative support staff to janitorial and food services to financial and marketing strategy – accomplishing the same goals without sacrificing internal staff on a time-consuming, sometimes repetitive or short-term, project.
Lease renewal is a time-intensive process that may also be managed by an expert to avoid incurring unnecessary costs at each renewal.
When renewing a lease for a specific location, the best outcome is a commercial agreement that utilizes the leverage of the firm, maintains a positive relationship with the landlord, provides flexibility for the future, and includes incentives or value-add for necessary or cosmetic upgrades, or reduced rent. Companies want each lease renewal handled with care to a favorable result, so finding the right trusted advisor is a critical success factor.
When managing real estate assets across multiple properties, regions or even countries, a company’s ideal partner is a preferred provider with multi-market experience. Although each lease renewal situation is unique, the right partner should meet specific criteria, including:
- Commercial Skill – Partner (or expert team) should have experience in the commercial market, and possess good judgment and experience in contractual matters..
- Communications and Diplomacy – Partner should communicate the needs of the client to the landlord and then communicate the position of the landlord in a respectful, courteous and business like manner, as if the partner was an employee of the company.
- Results Oriented – Each renewal should be managed in an accurate and timely manner, letting the results-oriented partner successfully complete the assignment, minimize disruption of the operation and move on to the next task.
- Analytical Ability – Every negotiation presents its own set of options and alternatives for the company. The partner should be able to present all reasonable options to the company, with a strategic recommendation for how best to move forward. Analytical skill for lease versus lease, lease versus buy, along with the many concessions (landlord and tenant) and incentives, is an important trait.
Hidden Costs
Putting too much faith in the relationship with the landlord (or management company) for cost savings is a mistake many companies make in the lease renewal process. Each landlord has a business to run, and has factored in a renewal commission and allowance for vacancy in their budgets. In a straight tenant-landlord negotiation, tenants believe they can negotiate this commission away, whereas landlords find ways to create sources of one-time profit within each renewal. Landlord budgets and rental rates reflect these renewal commissions simply because landlords would be naïve to assume that every tenant will renew in place and commission payments are not required.
Managing the Process
The true nightmare scenario is a lease renewal negotiation that goes badly, and ends up costing the tenant more money than expected or budgeted, or, worse, the loss of the space without a backup plan. So how do companies delegate the renewal process, yet maintain quality control? The key is delegation with control.
When outsourcing the renewal process, it is the preferred provider’s responsibility to work with the company to understand the business strategy, individual tenants’ needs today and tomorrow, and to create a plan to effectively communicate those needs with each landlord.
Lease renewals typically follow the same process:
- Corporate sets strategy and engages a partner
- Partner relies on local support to negotiate on behalf of corporate with the landlord
- Partner communicates deal progress
- Partner reports deal success and surveys for best/worst practices
Outsourcing the lease renewal process for all locations across the enterprise allows the corporate real estate team to reallocate internal resources to focus on business objectives, while a trusted partner with expertise in commercial real estate and a presence in the local market negotiates a new agreement.
By utilizing a trusted partner and a pre-determined strategy, including professional representation, optimum timing and extensive market research, tenants can successfully renew each location’s lease with a positive outcome. At the end of the renewal process, the client will have advanced their business objectives while negotiating multiple lease renewals that meet their needs today and tomorrow.
