Commercial real estate leases are ripe for a redo: Where businesses can look to save

Office vacancy rates are high and could climb further. Yet many landlords haven’t been cutting their tenants breaks on monthly rents to keep them in place.

A poll by Capterra finds 74% of small businesses are paying more in monthly rent for their main property in 2023 compared to 2022 (Capterra interviewed 500 small business owners in September).

So what’s going on? Well .. landlords in some neighborhoods are dealing with 20% or higher vacancy rates and are desperate to hold the line. Commercial real estate owners aren’t immune to the effects of inflation, after all. Those who’ve gone through the ups and downs over the years won’t bend far to placate a tenant.

As for businesses leasing space, so-called “sticky” rent is a fact of life. Relocating is costly and risky, and often not worth the hassle. Tenants frequently love a space they’ve settled into (although they’d prefer their landlords don’t realize that).

But now the market appears to be swinging in the tenant’s favor. Especially for small- to mid-sized businesses that aren’t hesitant to negotiate.

Businesses typically need to start the conversation

Capterra’s poll reveals 63% of small business owners renegotiated their leases in the past year. Forty-three percent say they intend to do so again over the next year. And 81% say tenants now have the upper hand when it comes to CRE leases.

To score favorable terms, owners and execs will almost certainly need to go to bat for themselves. Just 27% of businesses say their landlords initiated discussions to renegotiate, according to Capterra, despite the “win-win” nature of many renegotiations.

There’s obviously more than one way to skin the proverbial cat. For example, a request to lower or freeze rent might not entice a landlord to budge. But a more favorable rent in exchange for extending a lease out an extra year or two might get a deal done.

Landlords may also be willing to waive utilities or maintenance fees. Tenants with a strong credit rating may be able to negotiate waiving of a security deposit. There may be other benefits such as building services (food, office furniture) that can lower the bottom line for a business that needs to lease space.