Rent: For many small business owners, it may be the silver lining in the current economic downturn. Indeed, for companies looking for new space, these may be the best of times. With office vacancy rates at 16.5% for the third quarter of 2009, according to Reis Inc—and projected to go as high as 19% in 2010--cash-strapped landlords in many places around the country are willing to negotiate rock-bottom rents. Plus, if you want to renegotiate the terms of your current lease, that’s possible, too. “The last 18 months have been a great time to be a tenant,” says John Hannigan, founder of Choyce Peterson, a commercial real estate brokerage firm in Stamford, Ct.
Take Ryan Howard. The CEO of 20-employee Practice Fusion, which sells electronic health record systems for doctors, recently moved his San Francisco business to new 7,500 square foot office space and, he says, “We got the rent at a song.” In fact, according to Howard, the same space would have cost twice as much just two years ago. He didn’t even bother haggling because, “The price was so low out of the gate, I felt I’d be insulting him if I tried.”
Still, no matter how tenant friendly the environment, you still need to know what you’re doing. Here are some tips for getting the best deal:
More than ever, the asking rate is fiction. According to Hannigan, asking rates haven’t declined significantly. But, you can expect your actual rate to be discounted by 30% or more. Also, according to Howard, you should be able to get at least one month’s free rent—or more, depending the duration of the lease. The longer the term, the more free rent you should receive.
Study up on other concessions. Rent is just the starting point. In fact, there are a host of other concessions you should ask for. For example, you most likely will be able to have renovations done according to your specifications for free or at a low cost. Also, ask for a short-term lease of just a year or two. Or, you might get away with a month to month, if that’s better. For small business owners staying in the same space, make sure to reset your base rent, which includes operating expenses and taxes. One more concession: the option to expand to additional space, at the current, lower rate.
If you’re looking to move, the best strategy is to research 8 to 10 buildings and see how willing the landlords are to negotiate. Then, advises Hannigan, hold simultaneous negotiations with two to three places.
If you want to stay put, you can get concessions, too. “Tenants should not be shy about asking for relief,” says Hannigan. That can include anything from negotiating a lower base rent for the duration of the lease to an outright rent reduction.
You’ll probably need to do something for the landlord in return for receiving such changes. For example, if you negotiate a lower rent for a year or two on a five-year lease, then you may have to agree to a higher rent for the last year. Or you could negotiate a lower rent and agree to extend your lease for another three to five years , at the less-expensive rate. That way you get a better rent and your landlord has a guaranteed tenant.
Mike Michalowicz, founder of Obsidian Launch, a five-employee small business consultancy in Boonton, NJ, recently was able to re-negotiate his lease, getting more space at a 30% reduction in rent in return for agreeing to extend the time commitment. He also received free access to a dumpster maintained by his landlord. “If you can commit to a longer stay, you’ll get a better deal,” he says,
Use a broker. With so much vacant space, you might be tempted to go it alone. But, unless you’re very real- estate savvy, you should probably use a broker. Howard, for example, says he owes part of his success in finding the right office at the right price to his broker’s acumen. Says Howard: “She does an awesome job of finding spaces just below market to start with. I could never have done that myself.”
