Commercial real estate leases can be lengthy and dense. Prospective tenants assume that much of the content other than the financial terms is unchangeable “boilerplate” language. When reviewing the lease, commercial tenants look hard at the numbers and simply try to understand the rest. In fact, many non-financial provisions in a commercial real estate lease are negotiable.
As a tenant representative, we obtain the best possible arrangements and terms for our clients in many respects during lease negotiations. This month we’ll focus on some of the lesser-known negotiable economic provisions in a commercial lease. Then in March we’ll explore various obscure non-economic lease provisions that can be negotiated to your advantage.
Your landlord is well-aware of these details and fine print ... and you should be too!
Certain economic considerations in a commercial lease are well-known and easy to identify. The rental rate, obviously, is a primary factor, along with provisions related to security deposits, tenant improvement allowances, and parking abatements.
But tenants shouldn’t stop there.
Summary
Over the past calendar year, economic conditions in Denver’s industrial and office markets were polar opposites.
Industrial space seemed to be snapped up nearly as quickly as it came online. It was quite the opposite in the office sector as 1.80 million net sq. ft. of space was vacated even while new properties came online.
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Through a channel partner, we were referred to the Australian financial services company, Finstro, as they were reaching out into the U.S. to provide their innovative customer payments solutions. The company needed to establish a staffed, physical presence in the Denver region within three months to fulfill commitments they had made to their U.S. banking partner.
Finstro needed approximately 5,500 square feet of space, including 20% conference/huddle rooms, several executive offices, and shared space for their sales team.
It was a privilege to educate the Finstro team about the Denver region’s commercial real estate market, including what items are negotiable, what concessions to press for, the various lease structures, and even the differences in vernacular. We helped these company executives understand their options so they could make the best choice for their company and be in a strong position to explain and validate their decision to their shareholders.
The team knew enough about Denver to know they wanted to be in the downtown area with access to clients and to recruit the caliber of employees they wanted. The executives came to Denver twice for half-day site visits over a two-week period. In that limited time , we did an extensive review of properties on both ends of downtown (from LoDo to the Northeast side) and all points in between. We also presented the differences between Class C, Class B, and Class A properties.
The price points, access to employee transportation, and the availability of the necessary spec suites led us ultimately to 1660 Lincoln, a Class B+ property that ideally suited their needs, budget, and brand. We reviewed with the property manager the recent HVAC and other improvements they had made to the property.
Summary
Reviewing the current marketplace for commercial property in the Greater Denver region is a tale of two sectors. The data for each of the two primary segments, industrial and office, matches the narrative we’re all familiar with regarding the relative impact of the COVID pandemic on these two market segments and the status of the financial recovery in each.
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