Renew or relocate? 7 tips for navigating your office lease expiration

As your current lease nears its end, it's an ideal time to consider how your workplace can better serve your organization's evolving needs. Rather than simply renewing the same terms, you could renegotiate for more flexibility, redesign your space, or explore relocation options that would better support your present and future goals.

Chances are, the lease you signed 10 or even five years ago is not the lease that fits your priorities today. Whether your organization decides to renew or relocate, you must operate strategically within today’s office market to best support your company’s growth, and the wellbeing of your employees.

The following are seven strategies to make the most of the opportunity that a lease expiration represents.

1. Start early.

Underestimating the lead time required to make the renew-or-relocate decision and complete lease negotiations is a common mistake. In general, larger offices need more time. Beginning early gives you the time to evaluate your needs, understand the market and assess your options.

You should be prepared to begin discussions 18 to 24 months in advance, particularly if your company aspires to become an anchor tenant in a new development.

Starting a discussion with your landlord doesn’t mean you are committed to a particular decision—it means that you are ready to negotiate. However, you must provide your current landlord with notice of your intentions within the timeframe outlined in your current lease agreement.

2. Revisit your workplace requirements.

A key step is to define what your business needs and what makes an ideal office. How much space is required? Would renovations and upgrades to your current space make it better for your employees?

A starting point is to review your workplace strategy. Many companies are continuing their hybrid work policies, with most or all employees in the office at least three days per week, and the number of companies announcing a full return to the office is trending upward.

For hybrid work or office-only mandates, you’ll need to know when and how your employees use the office. This helps you decide if you could use less space. You could make the office smaller but fit everyone on busy days by redesigning the office with flexible layouts and modular furniture for individual and group work.

If the future seems uncertain, consider how to make your lease terms and your portfolio more flexible. For instance, your lease could include options to expand or give up space. In addition to traditional leased space, it might make sense to include flexible, coworking or subleased space in your portfolio as options that don’t require a long-term commitment.

3. Research alternatives in the market.

Even if you prefer to stay in your current space, educate yourself on other buildings and owners in the market. Understanding office market trends and rental rates will help you determine if your rent is competitive.

The market has likely changed since you signed your current lease. Some submarkets may have declined as others have become more vibrant. Certain landlords may be offering generous build-out allowances and rent concessions, while others may not.

Understanding the market puts you in a better position to negotiate more favorable terms with your current or future landlord. You’ll have a better sense of what is a realistic request and the extent to which your landlord will be willing to negotiate.

4. Consider higher-quality space and more flexible lease terms.

Hybrid working has changed the office market.  Many older buildings face high vacancies as tenants reduce space, while newer, sustainable buildings attract companies prioritizing employee well-being.

If your office is in an older building, you could consider relocating to a high-quality building, perhaps closer to a train station or to the vibrant restaurant scene. If your organization has adopted hybrid work, the cost savings of a reduced footprint will help offset the higher rents in a new building. If you don’t want to cause disruption by moving, your landlord may be willing to help fund space upgrades and modifications.

You also may be able to secure flexible lease terms. Flexible terms have become increasingly popular, especially for rapidly growing companies and those that have embraced hybrid work. For any business facing uncertainty, agility has become essential.

Choosing the right mix of lease terms and flexible spaces requires careful analysis. Today’s office market offers more flexible options than ever before. Often, it helps to work with a real estate advisor to structure the right combination of spaces and negotiate appropriate lease terms.

Flexible lease options:

• Length: Consider a shorter lease duration, rather than the traditional five to 10 years.
• Break clause/early termination: Allows you to exit the lease early, with advance notice of three to six months.
• Sublease/assignment flexibility. Allows you to sublease or assign the lease to another tenant if needed and provides exit options without financial penalties.
• Rent-free or step-up periods. Provides rent-free months in the first year of lease, or base rent rate that increases gradually over time to ease tenant cash flow during initial occupancy. 
• Expansion/contraction rights: Options to add or reduce leased space. The amounts can be preset to avoid landlord renegotiations.
• All-inclusive rental rates. Single monthly payment covers rent, utilities, cleaning, internet, maintenance and other expenses.
   

5. Understand your landlord’s financial position.

Landlords prefer to keep tenants to avoid vacancies, which incur lost rent, renovation expenses and marketing costs. For effective negotiations, understand the landlord’s overall portfolio and the significance and value of your lease. The more value your lease adds to the landlord’s portfolio, the more negotiating power you will have.

On the other hand, if your lease is a small part of a thriving portfolio, you'll have less negotiating power. It’s also important to understand the landlord’s financial position and the debt they carry on the building you’re considering before signing a lease. Today, lenders are cautious about office investments. A landlord’s financial position can impact their ability to fund tenant improvements or common area upgrades.

6. Form a strategy.

As your lease expiration approaches, avoid giving your landlord the impression that you are committing to renewal. This helps maintain a favorable position for concessions. Instead, consider the location alternative you have researched. Even if you are against relocating, a review of other buildings may suggest improvements that would make your current location more appealing to employees. You may be able to negotiate with your landlord to pay for improvements, like upgrading your space or providing more parking spaces.

Before beginning negotiations with your current landlord, it’s important to know what your business needs versus what is “nice to have,” and to have a sense of what your landlord realistically would be willing and able to do. Clear priorities will make for smoother negotiations.

7. Consider hiring a broker to help you negotiate effectively.

Information is power in lease negotiations—but researching the market and negotiating a lease is time-consuming and resource-intensive. In addition, the complexity of lease negotiations can lead to misunderstandings and unfavorable terms if not carefully managed. Unexpected costs and delays can cause disappointing outcomes, too.

The best option is to retain a broker. A good broker will understand your unique requirements and ideally, you want to choose a broker that is part of an integrated team with expertise in workplace strategy and project management to ensure a seamless journey from lease signing to build-out and move-in. You’ll be able to achieve your new workplace vision on time and within budget, while minimizing business disruption.

Is your office lease expiring soon? Contact us for expert advice to help you find or create your ideal workplace.