Whether a tenant chooses to remain or move to a new location is highly relevant for property owners, as a departure can have significant ramifications for the asset. The exit of a single-tenant may necessitate a complete repositioning of the property, including substantial refurbishment works. In other scenarios, it opens up opportunities to carry out overdue renovations or to re-let the space at higher rents in response to changing market conditions. For these reasons, it is crucial to proactively address expiring leases well in advance.

Below, we outline the considerations property owners must take into account and how to prepare for them during the lease term.

Given the heterogeneity of real estate assets, each case must be assessed individually. While variables such as micro-location, building specifications, and market cycles play a key role, the strategic analysis of lease renewals adheres to a proven framework based on four essential questions:

• What are the costs associated with a possible tenant departure?
• What are the consequences if the tenant stays?
• What opportunities might arise from a tenant’s exit?
• What is the current market backdrop, and how does my property perform in this competitive environment?

As illustrated above, losing a tenant can have significant cost implications, coupled with vacancy and reputational risks. To position yourself favorably for an upcoming lease renewal, it is essential to understand the tenant’s perspective and requirements. This is only possible through regular communication between the landlord or property manager and the tenant.

In addition to at least annual discussions at a senior management level, it is important to gather tenant insights across all operational levels as part of active asset, property, and facility management initiatives. This ongoing dialogue also provides indications of the likelihood of tenant retention.

For tenants with a nationwide footprint, it is equally important to consider the wider portfolio, not just the single property. Tenant issues in one asset may affect leasing decisions in other buildings owned by the same landlord.