Rise of the Small Office Tenant
As the office market rebounds from the pandemic, we are seeing in the D.C., Maryland, and Northern Virginia, some similar trends with small office tenants. This article by Erika Morphy for GlobeSt.com showcases how some small businesses are now leveraging their negotiating power with their tenants. Some highlights:
- It’s easier to get reductions in maintenance costs and utilities versus focusing on base rent.
- Smaller tenants are in a position to negotiate better lease rates at shorter terms.
- A good office broker will help you negotiate for things like tenant improvement allowance, free rent, and much more.
- Sometimes, a landlord needs more than a nudge to realize a tenant is serious about renegotiating space.
At Cresa, we are experts in lease negotiation, and we know the D. C. area office market. We can help you negotiate with your landlord and we will get you the results you are looking for. We also offer lease auditing services that can identify savings with your current landlord. Please contact me at 301-842-6542 or visit my website at www.tenant-broker.com.
Smaller office tenants have typically been occupants without much negotiating power. Now, in this post-pandemic era, they are finding their voice.
By Erika Morphy | April 22, 2021 at 02:38 PM
When Alina Clark was ready to approach her office landlord with a conversation about renegotiating the rent, she knew that mentioning the economic havoc wrought by the pandemic wouldn’t work. So the co-founder of CocoDoc, a software development company based in the Los Angeles area, tackled the problem in a different way.
“It’s easier to get cuts on things like maintenance costs and utilities, instead of the base rent,” she says. “We easily got a rent reduction by focusing on those, instead of the base rent.” It also helped that she assured the landlord the company was going to stay for the long term. “The fact that we were willing to commit for five years was one of the major considerations when renegotiating the lease agreement,” Clark says.
CocoDoc is one of millions of small businesses that make up the backbone of the commercial office sector. They are not the Salesforces or JP Morgans of the corporate world by any means but their leases serve as an integral base for a building’s occupancy. But until recently, by virtue of their small size, they have had little sway with landlords when it came to renegotiating or negotiating a lease.
Then the pandemic happened and their fortunes changed.
Moody doesn’t advise tenants to go it alone when shopping around for space. “The way to get the best deal is to have an experienced office broker who knows the market,” he says. “A good office broker will help you negotiate for things like tenant improvement allowance, free rent, parking rights, overtime air charges, caps on operating expense increases, operating expense exclusions, expansion options, termination options, renewal options, and rights of first refusal on adjacent space. Other terms like expansion options can be critical to remaining in the same building as your company grows. In other words, there are so many other important terms to negotiate that are just as important as the rental rate.” It is also important to understand your current and projected office space needs over the next 5 to 10 years before you sign a lease, he adds. “A good broker can help you evaluate your needs and how best to structure your deal.”
Most experts will advise on using a broker but there are some scenarios, such as renegotiating rent with an existing broker, where it can sense to do it yourself.
Just make sure you approach the landlord correctly and are armed with financial information.
“When renegotiating with your landlord, be honest with respect to your financial challenges but also be optimistic about your ability to recover,” says Aaron Weiner, president of Weiner Property Services in Beverly Hills, CA. “Negotiating with your landlord is no different than going into your bank for a loan. If you go into the bank with your pockets inside out and desperate, are they going to extend you credit? Not likely. I coach my clients to tell their story in a way that will make the landlord invest in them. And it is true—when a landlord gives you a rent abatement, he is investing in your business.”
With the right attitude, tenants can strike all kinds of deals, says Nathan Murphy, co-founder of QuizBreaker, a small business that offers virtual team building activities for employees. “We were able to re-negotiate rent by believing we were in a growing industry that was going to skyrocket after seeing a recovery post-pandemic. By promising our landlord we would re-pay any debts we accumulated over the course of the pandemic, we were able to significantly reduce the amount we would have to pay as long as we recouped later on.”
Sometimes, though, a landlord needs more than a nudge to realize a tenant is serious about renegotiating space.
Christopher Adams, founder of ModestFish, was one of the countless businesspeople who struggled during the pandemic-led recession. “It got to the point where our office monthly rent was becoming too rich for our blood and we had to take steps to cut costs any way we could, starting with the rental price.”
Locked in a two year lease, Adams first tried sending emails, asking the landlord if he could lower the rent during the pandemic, and even proposed that he could make up the difference of a discounted rent in later months once the pandemic rescinded. “He would not accept any of this,” Adams said.
“What worked for us was this. We realized that the growth in office space vacancy has grown substantially since the pandemic began taking its toll, and we were prepared to change locations as a last resort, though that was never our primary intention. I made a call to our landlord and let them know that we were going to put in a 30 day notice that we will be terminating our lease, with 14 months still remaining, and that they could keep the deposit with no issues, and gave best apologies in addition.”
Breaking a lease was a legal risk but Adams was hoping the growing vacancies in the building would play in his favor.
Something worked. The following day he received a call back from the landlord asking him if there was anything that they could do to accommodate us into staying in his building. “I let him know plain and simple, that the rent was more than we can budget for currently and we were planning on going into a building nearby that [was renting for less]. Right then, he asked if he lowered the rent for the duration of the lease, if we could stay.”
About The Author
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
End of Article
If you have significant questions about your current real estate strategy, it may be time for a discussion. Once we have started our conversation, we can create a strategy to look at your business operations and current space and then craft up a plan to find something that is a great fit in the area. With the current vacancies and inventory, we will work with you to get the best deal. We represent tenants ONLY, so you can feel comfortable that we are working for your business 100%. If we can help you by being your tenant broker in the DC, Maryland, or Northern Virginia area, visit my website or call me at 301-841-6542. Make sure to follow all my social efforts by clicking on the links below.
Daniel Shapiro
Commercial Tenant Broker
2 Bethesda Metro Center, Suite 900
Bethesda, MD 20814
301-842-6542
Like me on Facebook
- It’s easier to get reductions in maintenance costs and utilities versus focusing on base rent.
- Smaller tenants are in a position to negotiate better lease rates at shorter terms.
- A good office broker will help you negotiate for things like tenant improvement allowance, free rent, and much more.
- Sometimes, a landlord needs more than a nudge to realize a tenant is serious about renegotiating space.
At Cresa, we are experts in lease negotiation, and we know the D. C. area office market. We can help you negotiate with your landlord and we will get you the results you are looking for. We also offer lease auditing services that can identify savings with your current landlord. Please contact me at 301-842-6542 or visit my website at www.tenant-broker.com.
The Rise of the Small Office Tenant
Smaller office tenants have typically been occupants without much negotiating power. Now, in this post-pandemic era, they are finding their voice.
By Erika Morphy | April 22, 2021 at 02:38 PM
When Alina Clark was ready to approach her office landlord with a conversation about renegotiating the rent, she knew that mentioning the economic havoc wrought by the pandemic wouldn’t work. So the co-founder of CocoDoc, a software development company based in the Los Angeles area, tackled the problem in a different way.
“It’s easier to get cuts on things like maintenance costs and utilities, instead of the base rent,” she says. “We easily got a rent reduction by focusing on those, instead of the base rent.” It also helped that she assured the landlord the company was going to stay for the long term. “The fact that we were willing to commit for five years was one of the major considerations when renegotiating the lease agreement,” Clark says.
CocoDoc is one of millions of small businesses that make up the backbone of the commercial office sector. They are not the Salesforces or JP Morgans of the corporate world by any means but their leases serve as an integral base for a building’s occupancy. But until recently, by virtue of their small size, they have had little sway with landlords when it came to renegotiating or negotiating a lease.
Then the pandemic happened and their fortunes changed.
“Today, smaller tenants are in a position to negotiate better lease rates at a shorter term,” says Greg Azayev, executive managing director and principal broker at Stelth Commercial Group in New York City. “The most significant expense for any office landlord is vacant space. The rising inventory of vacant and sublease space puts pressure on landlords and makes them more open to concessions and terms that favor the tenants.”
There are other reasons as well a landlord would be willing to sit down with a smaller tenant, says Trevor Adler, a partner in Stroock’s national real estate group. “The tenant might be a long-term and solid one or there could be a reputational aspect—meaning the landlord wants this particular company in its building.” A high-value tenant, even a small one, shows other potential tenants that a building is worth considering, Adler says.
The tenant could also be in growth mode, which would have appeal to the landlord, says Azayev. “A smaller tenant with a strong business plan and ambition can sway a landlord in today’s market to lease them a small space at a discounted rate. You see this frequently where a tenant starts with 2-3,000 square foot space, and in 5 years, they take up an entire 20k square foot plate in a building.”
Another reason could be the landlord has a high amount of debt on the property and needs to have a high occupancy rate to stay in compliance with the financial covenant in its loan, says John S. Moody, Jr., a Board Certified commercial real estate attorney and founder of the Houston real estate law firm Moody Law Group.
There are other reasons as well a landlord would be willing to sit down with a smaller tenant, says Trevor Adler, a partner in Stroock’s national real estate group. “The tenant might be a long-term and solid one or there could be a reputational aspect—meaning the landlord wants this particular company in its building.” A high-value tenant, even a small one, shows other potential tenants that a building is worth considering, Adler says.
The tenant could also be in growth mode, which would have appeal to the landlord, says Azayev. “A smaller tenant with a strong business plan and ambition can sway a landlord in today’s market to lease them a small space at a discounted rate. You see this frequently where a tenant starts with 2-3,000 square foot space, and in 5 years, they take up an entire 20k square foot plate in a building.”
Another reason could be the landlord has a high amount of debt on the property and needs to have a high occupancy rate to stay in compliance with the financial covenant in its loan, says John S. Moody, Jr., a Board Certified commercial real estate attorney and founder of the Houston real estate law firm Moody Law Group.
Most experts will advise on using a broker but there are some scenarios, such as renegotiating rent with an existing broker, where it can sense to do it yourself.
Just make sure you approach the landlord correctly and are armed with financial information.
“When renegotiating with your landlord, be honest with respect to your financial challenges but also be optimistic about your ability to recover,” says Aaron Weiner, president of Weiner Property Services in Beverly Hills, CA. “Negotiating with your landlord is no different than going into your bank for a loan. If you go into the bank with your pockets inside out and desperate, are they going to extend you credit? Not likely. I coach my clients to tell their story in a way that will make the landlord invest in them. And it is true—when a landlord gives you a rent abatement, he is investing in your business.”
With the right attitude, tenants can strike all kinds of deals, says Nathan Murphy, co-founder of QuizBreaker, a small business that offers virtual team building activities for employees. “We were able to re-negotiate rent by believing we were in a growing industry that was going to skyrocket after seeing a recovery post-pandemic. By promising our landlord we would re-pay any debts we accumulated over the course of the pandemic, we were able to significantly reduce the amount we would have to pay as long as we recouped later on.”
Sometimes, though, a landlord needs more than a nudge to realize a tenant is serious about renegotiating space.
Christopher Adams, founder of ModestFish, was one of the countless businesspeople who struggled during the pandemic-led recession. “It got to the point where our office monthly rent was becoming too rich for our blood and we had to take steps to cut costs any way we could, starting with the rental price.”
Locked in a two year lease, Adams first tried sending emails, asking the landlord if he could lower the rent during the pandemic, and even proposed that he could make up the difference of a discounted rent in later months once the pandemic rescinded. “He would not accept any of this,” Adams said.
“What worked for us was this. We realized that the growth in office space vacancy has grown substantially since the pandemic began taking its toll, and we were prepared to change locations as a last resort, though that was never our primary intention. I made a call to our landlord and let them know that we were going to put in a 30 day notice that we will be terminating our lease, with 14 months still remaining, and that they could keep the deposit with no issues, and gave best apologies in addition.”
Breaking a lease was a legal risk but Adams was hoping the growing vacancies in the building would play in his favor.
Something worked. The following day he received a call back from the landlord asking him if there was anything that they could do to accommodate us into staying in his building. “I let him know plain and simple, that the rent was more than we can budget for currently and we were planning on going into a building nearby that [was renting for less]. Right then, he asked if he lowered the rent for the duration of the lease, if we could stay.”
About The Author
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
End of Article
If you have significant questions about your current real estate strategy, it may be time for a discussion. Once we have started our conversation, we can create a strategy to look at your business operations and current space and then craft up a plan to find something that is a great fit in the area. With the current vacancies and inventory, we will work with you to get the best deal. We represent tenants ONLY, so you can feel comfortable that we are working for your business 100%. If we can help you by being your tenant broker in the DC, Maryland, or Northern Virginia area, visit my website or call me at 301-841-6542. Make sure to follow all my social efforts by clicking on the links below.
I specialize in providing comprehensive real estate services,
exclusively representing corporate tenants on all commercial real estate needs.
Commercial Tenant Broker
2 Bethesda Metro Center, Suite 900
Bethesda, MD 20814
301-842-6542
Follow me on Twitter
Follow me on LinkedIn
Follow me on Instagram
Visit my Website
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