Jonathan Keyser is the founder of Keyser, one of the largest occupier services commercial real estate brokerage firms in the nation.
The commercial real estate environment is always impacted by the general economy, but today’s post-pandemic environment also has the added pressures caused by the growing work-from-home movement. While many landlords are holding on to high rental rates despite climbing vacancies, tenants still hold the cards. Rising office sector vacancy rates have given tenants strong negotiating leverage, and that leverage is not going away any time soon.
Commercial tenants have historically gotten less than optimum lease terms as landlords and traditional brokers are experts at playing the negotiation game to get the most out of a tenant that they can. My company, Keyser, is a tenant-only commercial real estate brokerage firm. Here are just a few of the classic negotiating strategies we use that you might find helpful in your own deals.
1. Going Dark
Silence can be one of your greatest negotiation tactics. If you’ve ever been part of a negotiation, perhaps one that went sideways, silence often means a lost opportunity. If the opposing negotiating party is sensing shortcomings in the original terms they’ve presented due to extended silence, they may be extra proactive when communicating, or even make an extra effort to get the deal back on the table.
How this works in the tenant’s favor: Creating a “deadline” that is weeks ahead of the true deadline applies pressure on negotiating parties. This early timeline in combination with a “going dark” strategy often persuades landlords to show their best offer sooner.
2. Phantom Expansion
A phantom expansion is when a tenant positions themselves as having the ability to expand, merge or acquire another business. At the time of negotiation, the expansion is not currently underway but is posed to be a future possibility, regardless of actual expansion plans.
How this works in the tenant’s favor: Asking the landlord for expansion options not only sets them up with hopeful expectations but also gives the tenant more credibility with regard to stability. If the tenant is considered small but expected to expand soon, the landlord may be more willing to secure that tenant in hopes that they lease a larger percentage of the available space in the future. Regardless of whether you implement this strategy or not, asking for expansion options is always a strong best practice in negotiations because the added flexibility to grow could be necessary as the tenant’s business progresses through its lifecycle.
3. The Unfixable Flaw
In evaluating each potential commercial real estate opportunity, be sure to identify any weaknesses present, specifically ones that will be hard to remedy or highly costly/inconvenient to fix. This flaw should not be a deal-killer but rather something the tenant needs to take into deep consideration before moving forward. This unfixable flaw can be anything — the location, parking situation, clear height, tenant mix or even corporate neighbors.
How this works in the tenant’s favor: Pointing out this flaw will give you leverage to ask for additional concessions to sweeten the deal and make up for the unfixable flaw.
4. The Understatement
Understating a size requirement can open the door for a sweet deal — at least on a portion of the tenant’s space. If the tenant is looking for 50,000 square feet and the landlord is offering 50,000 SF, the tenant can state that they are only looking for 42,000 SF, allowing the landlord to upsell them to their original, unannounced size requirement.
How this works in the tenant’s favor: If the tenant can make it seem like the additional 8,000 SF is unnecessary, they can easily negotiate a lower rate because of their “take-it-or-leave-it” mindset. This feels like a win for the landlord because they were able to upsell the tenant and fill their entire space rather than looking for a secondary tenant or leaving the space vacant. In reality, this is a win for the tenant because they may have been offered additional concessions or a lower rate on the additional space, bringing their average rental rate down.
Don’t let brokers or landlords take advantage of you on your next lease negotiation. To implement strategies like the above, make sure your commercial real estate broker is conflict-free, meaning they do not represent both landlords and tenants.
While that may seem obvious, the commercial real estate industry is full of conflicts of interest, and the tenant usually gets the short end of the stick. Don’t get blindsided by a brokerage firm or advisor whose fiduciary interests lie with the landlord; look to hire a firm that uses the above strategies only in your favor.