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The weak commercial real estate market presents opportunities for significant savings. Below are 3 recommendations for companies to take advantage of the current market conditions.

1. Use a tenant representative to leverage market conditions to your advantage. The information and market knowledge a good tenant rep. provides is key to negotiating a favorable deal. There is some question however as to whether it makes the most sense for a company to ”go direct” when renewing a lease and not have a tenant rep. broker the deal. While this option could be touted as saving the tenant money because they save the agent fee, a knowledgeable tenant rep with good negotiating skills can offer value by achieving a better deal than the tenant is able to negotiate directly, as well as being able to negotiate more aggressively than an ongoing tenant, reducing any fears of relationship damage with the landlord. When a tenant rep familiar with market standard clauses isn’t used, landlords can potentially incorporate clauses into a renewed lease (such as after hours air conditioning charges) that earns far more for the landlord than the tenant believes he is “saving” by not using one. The best thing a tenant can do to cover all bases is to choose a knowledgeable tenant rep to represent their interests.

2. If you have less than 1 year remaining on your lease, consider renegotiating. Companies in this situation have landlords looking closely at the expiration of their lease term. While it’s true that in the current market landlords are often willing to accept a lower rental rate in order to secure a lease renewal, tenants must be careful to put themselves in a position of strength when looking for these results. Great deals don’t happen automatically. Thorough market data, the willingness to leave your current location and a tenant representative who will leverage your position with the landlord against other possible locations for your business in the market all come together to get you the best deal. For example, I was recently able to secure an extra floor – double the space – in their current building for a client for only approximately 25% of the rent of the original floor. The client had been paying 700,000 per month for the original floor, and I was able to achieve a rent level of 950,000 per month for both floors. This satisfying result was achieved via a position of strength in the negotiation process as it was made very clear to their current landlord that the client was willing and ready to accept a nearby alternative property at a similar rent level that I had identified. The landlord wisely conceded and the deal was done.

3. Lock in a long term lease now as rental rates are significantly down from their peak. According to Sanko estate, rental levels in A class buildings are in some cases down as much as 50% from their highest peak and down at least 20% from even a couple of years ago when companies currently renewing leases last had the opportunity to renegotiate. An option to lock in a low rental level once achieved would be to request a 3 or even 5 year fixed term lease. Some major developers are already requesting fixed term leases in exchange for significantly lower rental levels, and in this case a request to extend the term from the standard 3 years to 5 years would be prudent.

While the landscape of commercial real estate continues to change, these are examples of proactive steps that a company is able to take to protect their interests and drive savings and efficiencies within their leased space.

Andrew is the Commercial Leasing Manager at Housing Japan. He can be contacted at stevens@housingjapan.com (www.housingjapan.com).

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