The Art of Successful Negotiation in Commercial Real Estate

In commercial real estate, negotiations are more than mere financial transactions; they are strategic exercises requiring thorough preparation, balanced power dynamics, and ethical conduct. Success in this domain stems from meticulous groundwork and principled engagement that build sustainable business relationships. At JLL, we view negotiations as a comprehensive process, starting far in advance of the negotiation itself with strategic advice and thorough analysis.

Effective negotiation begins with establishing clear, realistic goals aligned with the overall business objectives. This crucial first step involves defining priorities and distinguishing between wants and needs. A prepared negotiator determines non-negotiable terms while identifying areas where flexibility exists. Setting clear deal-breaking factors from the start maintains focus and saves time for elements that warrant genuine consideration.

• Market Research: Comprehensive market research is critical, enabling negotiators to understand current conditions, pricing trends, and comparable transactions. This research provides the confidence and credibility needed to justify positions.
• Defining Your Negotiation Zone: Establishing an ideal outcome and walk-away point creates a clear negotiation zone, giving clarity on where compromises can be made without sacrificing essential requirements.
• Counterparty Research: Thorough preparation involves researching your counterpart to understand their needs, challenges, and potential strategies. The more you know about who sits across the table, the better positioned you are to find mutually beneficial solutions.
   

Those who invest time in thorough preparation achieve more favorable terms, experience smoother negotiations, and establish stronger business relationships that extend beyond the immediate transaction.

A realistic assessment of one's negotiating position is essential for success. Market assessment can be complex, and both property landlords and tenants face the challenge of accurately assessing their position relative to market realities.

• Objective Market Assessment: The market position can be evaluated more precisely – using the example of a lease renewal from the tenant's perspective – by obtaining a concrete offer from the landlord and objectively analyzing the responses. Involving an external consultant provides a neutral market assessment and maintains professional distance from emotional decisions that might otherwise cloud judgment.
• Understanding Landlord Structures: Understanding landlord structures is crucial when entering negotiations. Institutional investors have fundamentally different strategic goals than private landlords, which directly impacts negotiation flexibility and approach.

• Institutional Investors: Typically focus on protecting their net rents at all costs and maintaining portfolio-wide performance metrics, often requiring lease terms of at least five years, though they may consider break options when necessary. They generally have greater capital reserves for tenant improvements and can afford longer vacancies if it means securing higher long-term rents.
• Private Landlords: Often prioritize immediate cash flow even at slightly reduced rates, show more flexibility on net rent adjustments, and are typically more comfortable with shorter lease durations. While they may value long-term relationships, their decision-making isn't necessarily faster; non-professional landlords sometimes require extended timeframes due to unfamiliarity with market standards or the need to consult with multiple family members, creating a different but equally challenging negotiation dynamic.

• Strategic Techniques: Strategic techniques like "anchoring" (proactively submitting an initial offer) can prevent counterparties from setting disproportionately high prices and establish an advantageous starting point for discussions.
• Tenant Value Assessment: From the landlord’s perspective, a critical evaluation of tenant value is essential. This includes assessing location dependency and analyzing potential alternative rental income.
• Focusing on Interests, Not Just Positions: Effective negotiations go beyond discussing positions to understand the interests behind them, allowing for creative solutions incorporating additional parameters. While most parties readily negotiate familiar incentives like rent-free periods, fit-out contributions, and lease durations, too few focus on innovative solutions to eliminate hidden costs that significantly impact a tenant's total occupancy expense. Reinstatement obligations, for instance, often represent substantial end-of-lease financial burdens that go unaddressed during initial negotiations. For example, JLL was able to prevent high dismantling costs for a client that would have been due at the end of the contract, saving them over CHF 1.5 million.
  As another key example, we've successfully negotiated a contractual deadline requiring landlords to inform tenants by a specific date (with sufficient advance notice) whether or not they are required to dismantle improvements at the end of the lease term. This provides tenants with the necessary planning time and avoids the potential for additional costs associated with rushed restoration.
   

Furthermore, we've successfully guided numerous clients through strategic approaches that neutralize these costs – including cases where we negotiated partial early surrenders of space or structured partial early renewals that allowed tenants to eliminate reinstatement clauses entirely. These creative solutions emerge only when negotiations move beyond standard terms to address the deeper interests and concerns of both parties.

Ethical negotiation practices form the foundation for trust-building and long-term business relationships.

• Transparency and Honesty: Transparency and honesty build credibility throughout the process. Misrepresentations will eventually be discovered, undermining trust and future interactions. This does not require disclosing all information but rather acknowledging it openly when certain details remain confidential.
• Honoring Agreements: Once terms are agreed upon, avoid "moving goalposts" by honoring agreements instead of revisiting and renegotiating conditions later. While certain economic situations might occasionally necessitate reopening specific criteria, constantly restarting negotiations damages relationships, wastes time, and typically yields minimal benefit.
   

For instance, JLL advised an international client during a significant transaction against revisiting negotiated terms that deviated from standard Swiss market practices. We highlighted that doing so would likely cause delays and confusion, with little to no additional benefit for them. The client and the landlord appreciated this guidance, recognizing that JLL's advice mitigated the risk of delays and complications, allowing the lease transaction to proceed smoothly.
 

• Objective Standards: Objective-based negotiation leads efficiently to wise agreements using fair standards including market values, precedent, industry practices, costs, and expert opinions. When lease agreements contain standard clauses or purchase contracts follow industry conventions, both sides are less likely to feel disadvantaged. Legitimate criteria must be independent of either party's wishes and can be mutually applied to determine fairness.

Hiring industry experts like JLL significantly enhances negotiation outcomes by bringing specialized market knowledge and extensive networks to the table. Professional representation ensures fairness when power imbalances exist and helps recognize unfair terms while identifying overlooked opportunities. Expert negotiators advocate effectively without compromising relationship-building principles, providing the tools and expertise needed to navigate complex negotiations confidently.

With professional guidance, parties approach negotiations knowing their interests are properly represented while adhering to relationship-building standards. This expertise creates an environment where all parties feel respected, fairly treated, and motivated to fulfill their obligations.

The most successful commercial real estate negotiations create mutual value by combining thorough preparation, realistic assessment of the balance of power, and ethical conduct. This holistic approach transforms potential adversaries into long-term business partners. Instead of relying on complicated tactics, successful negotiators focus on honest self-analysis, comprehensive preparation, and creating win-win situations.

Those who master these principles—preparation, power awareness, and ethical action—not only secure advantageous conditions but also create the foundation of trust essential for lasting business relationships. In an industry built on long-term partnerships, how you negotiate today determines your success tomorrow.