Commercial Real Estate News / Leasing/Renting / Mastering Market Research for Successful Lease Negotiation

Mastering Market Research for Successful Lease Negotiation

Published: 06-25-24 Category: Leasing/Renting

Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.

Four men negotiating a commercial lease.

If you plan to lease commercial space soon, for yourself or with a business partner, you may feel intimidated about negotiating your lease terms.

You may wonder if you'll be able to obtain the concessions you want, or perhaps you're worried about negotiating pricing.

Market research can help you address these concerns and more by preparing you for this meeting with your future landlord.

When you understand the current CRE landscape and learn your area's current business atmosphere, you can better position yourself to secure favorable terms (and maybe some extras!).

Here, we provide a simple, step-by-step guide on gathering relevant data, conducting research, and analyzing market trends to prepare for your commercial lease negotiations.

We've arranged your “homework” into separate tasks, so you can check off each when you're finished.

Let's start with a search for properties similar to the one you'll be leasing space in.

#1 – Find Comparable Properties

Look for several properties that are as close to your lease space as possible, similar in size, location, amenities, and building class (A, B, or C).

You can find these by consulting a local CRE broker or by searching here at MyEListing.com.

Ideally, you'll be able to identify four properties currently offering lease space and four that have recently finalized new lease contracts.

#2 – Check Out Rent Rates

Write down the asking price-per-square-foot (psf) rates for the properties you identified in Step 1.

Compare their locations, building ages, conditions, amenities, and other factors.

#3 – Research Vacancy Rates

Assess the current vacancy rates for commercial properties in your area.

Research the vacancy rate numbers for the last six to 12 months to identify market shifts, if possible.

Quarterly CRE data reports from CRE data businesses such as Moody's and Colliers are available online.

Higher vacancy rates may indicate a tenant-friendly market, making you a buyer in a buyer's market. This may provide valuable leverage for negotiating concessions and rent discounts.

On the other hand, low vacancy rates may limit your bargaining power.

#4 – Identify Potential Concessions and Savings

Based on market conditions, vacancy rates, and your own professional references, determine which concessions appeal to you and that landlords may be willing to offer.

Consider asking for rent abatements, tenant improvement allowances, reduced security deposits, or favorable renewal options.

#5 – Dig for Data From Several Sources

Visit local economic development agencies, chambers of commerce, and industry associations and ask for recent market reports.

Review quarterly or annual market data reports from commercial real estate firms, such as Colliers.

#6 – Compile Your Findings

You're almost ready to negotiate your lease like a pro! Grab a coffee or matcha, sit down with your notes and data, and decide what you're willing to pay for your leased space.

Here are a few things to keep in mind:

Most commercial leases are triple-net (NNN) leases. This means that tenants are asked to pay more than rent. Costs such as maintenance, building insurance, utilities, and real estate taxes may also be part of this lease.
If you would like a preview of a typical NNN lease, you can check out sample templates for each state. Keep in mind, though, that these are only samples, and your actual lease agreement will probably not be 100% similar.
Since you will be paying expenses otherwise paid by the property owner, your costs per square foot will be lower.
It's helpful to locate data regarding local zoning modifications, infrastructure improvements, and future commercial builds before you meet with a landlord.
Be sure to decide your ideal lease term. If you're ready to commit to a longer lease, this may earn you a lower rent rate and/or other discounts.

If you have time:

Attend local real estate events, seminars, or networking functions. This will give you opportunities to schmooze and network with local CRE professionals.

Surf local newspapers' business sections to check out CRE news, trends, and future builds.

Still Unsure?

If you aren't satisfied with the results of your research, haven't had sufficient time to work through each step, or simply dislike negotiations, you may want to consider working with a CRE broker.

Here's what an experienced broker can do for you and your business:

Share market knowledge, including unpublished vacancies and special lease discounts that aren't made available to potential tenants.
Negotiate detailed terms. A broker may be able to obtain a variety of discounts for you, from rent discounts to cash for building out your business's space.
Save valuable time. If you're preparing to launch a new business or in the middle of expanding an existing one, a broker can make all the difference.

Generally, brokers earn commissions from landlords and CRE property owners, which means that they provide their services to tenants without charge.

List & Browse Commercial Properties for Free on MyEListing.com!

We hope we've provided you with all the information you'll need to prepare for an important business transaction and to negotiate the most favorable conditions and rates.

By conducting comprehensive market research, you'll be much better equipped to negotiate a commercial lease contributing to your business' future success…and lasting peace of mind.

Understanding rental rates, vacancy levels, and potential concessions empowers you to make informed decisions and achieve more favorable outcomes.

Remember to continually monitor market trends throughout your leasing process to adapt your strategy as needed.

If you haven't yet begun to search for the ideal CRE space for your next business move, set up a free account here at MyEListing.com and get started in just minutes.