What Should a Company Consider when Thinking about Renewing a Lease or Moving?  

Is your company nearing the end of its lease? Perhaps it’s time to renew your lease or decide to relocate to a more strategic business location. There are several factors that will impact your decision, such as your strategy to enter a new market, fluctuations in your finances or staff, or plans to increase or reduce your leased footprint. Whatever your plans are, your decision to renew the existing lease or relocate will directly impact business performance.

Here are some critical things to consider when determining whether to renew your commercial lease or move your business to a new location:

Is it the Best Time to Renew Your Lease?

When to renew your lease or move to a new location is one of the most important items for your business to consider. First, you will need to review your current lease to determine if there are any renewal options available to you. A renewal option is a clause that is typically agreed-upon with the landlord as part of the initial commercial leasenegotiations. If included, this provision will often come with a built-in deadline for which the tenant is required to provide notice to the landlord that it will either exercise or void said renewal option. To retain your rights to the option, you must express your intent to renew by this deadline. Make sure that your date management system keeps track of this date!

If you are considering a move, it is a good idea to start this process about one year prior to your current commercial lease expiration. This will allow for enough time to compare your current space to available options in the marketplace, and will provide time for lease negotiations, space planning, permitting, build-out, etc. This timeframe will ensure that you can occupy the new space as close to the expiration of your current lease as possible without interruptions to your business.

Additionally, certain market conditions such as current rental rates/vacancy rates in the area, operating expense costs, and new competing developments can impact your decision on renewing vs. moving. In a landlord-favorable market (high rental rates, low vacancy), it may make more sense to stay in your current location; however, a tenant-friendly market (low rates, high vacancy) may help identify that a new space could be the right step for your business. Knowing this information can help your business make an informed decision and will put you in a much better position to negotiate. 

Size of the Space

The size of your office space is another critical factor in evaluating whether to renew at your current location or move. Not only does the size of the space impact the functionality of your employees/business, it also has a huge effect on cost (as almost all office space is leased on a per square foot basis). Can you reduce your square footage (and in turn your monthly real estate cost) by creating a more efficient layout elsewhere? If so, it may be time to consider a move.

Of course, the outbreak of COVID-19 has prompted businesses to re-think how they utilize their office space in the short-term. Some companies have more employees working from home, minimizing the need for physical office space while others have had to adjust their office set-up to follow social distancing guidelines and provide a safe working environment for their customers and staff. Analyzing your current office situation and forecasting where you believe your business will be in the next 1-2 years is a valuable exercise to help determine the correct amount of space you need now and into the future. 

Assess What Your Space is Doing for Your Business

In addition to the size, you’ll also want to examine your existing commercial space and determine whether it offers an ideal working environment to your employees. Pay attention to the amenities for employees, updated technology infrastructure, and optimal office configuration. 

If there are inefficiencies, decide what improvements need to be made to the space to make it more productive for your business. These improvements should form important discussion points for your lease renewal. To keep you as a tenant, it’s quite possible that your landlord will be willing to cover a portion of the costs to update the space and potentially offer other incentives if they don’t have to deal with a vacancy and the costs that come with it.

Final Thoughts

From our perspective, the timing, the size of the space, the value you’re deriving, and the economic impact are some of the most important things to consider when renewing your commercial lease or contemplating a move.  By focusing on those issues, you will be in a much better position to make an informed decision. Other items to consider include moving costs, ease of access to the building for employees, layout and functionality of the current space, and the relationship you have with your current landlord and property manager. Also, be sure to go through the lease agreement thoroughly and clarify any clause that you don’t understand or find confusing.  Finally, build a team of professionals including a competent broker, an architect to help test fit alternative spaces, an experienced real estate attorney, and a project manager/contractor to help estimate the costs of retrofitting new spaces. The investment in professionals that can provide you guidance will pay dividends. 

Layne McBride –  Broker Associate

Mobile: 303.913.8854

Office: 303.449.2131 X.134

Email: mcbride@coloradogroup.com