5 Steps to a Successful Industrial Lease Negotiation

If you are designated to find new spaces for your organization, you will have to become a PRO at industrial lease negotiation. While the process might seem complicated, like most business activities, when broken down into steps, it can be more comfortable and faster.

Step One: Learn About Leases

The first step in learning about industrial lease negotiation is to learn about what you’ll be negotiating. One of the best ways to learn about contracts is to source for more information and digest them. Do thorough research on your company’s files and find some lease documents so that you can get familiarized with the language and terms in the content. Typically, leases discuss:

What you pay in rent

What other expenses you pay

How your rent changes over time

When you move in

How long you can stay in the space

Your ability to assign the lease or sublet the space

Your rights and obligations when the contract is running

The property owner’s rights and obligations

Your rights and responsibilities when the contract expires

What the property owner is throwing in for free

Step Two: Know More about the Market

Once you know what to look for, the next step in the industrial lease negotiation process is to find out what is generally reasonable in your market. While the type of research you do can vary, here are some of the industrial lease negotiation factors to learn about:

Rental rates for similarly sized spaces in comparable buildings

Rent increase norms

Types of the lease (gross, triple net, modified gross)

Typical lease and option terms

Typical property owner concessions (free rent, tenant improvement allowances)

Step Three: Decide What You Want

Once you know what is right in industrial lease negotiation, you can go ahead to formulate a plan and decide what you would like to have. For example, you might know that 4,000 square foot class office spaces usually rent out on five-year terms at $22 to $25 per square foot gross with five months of free rent and $10 per square foot in TI allowances. If you are looking for a ten-year lease, which is typically more affordable, you might ask for $21 rent, six free months, and $20 in allowances.

As you decide what you want to ask for, remember one of the fundamental rules of industrial lease negotiation. To get what you desire, you need to ask for a little more. So if you want to end up with the above lease term, you might go in asking for $19 rent, nine free months, and $25 in allowances.

Step Four: Write an LOI

Once you’ve made your decisions, draft it in a letter of intent and deliver it to the property owner. While the Letter of intent isn’t technically a binding document, putting something in writing is an essential part of moving an industrial lease negotiation forward.

Step Five: Negotiate Back and Forth

After you’ve delivered the Letter of intent, the property owner and his or her team will read through it. Ideally, they will give feedback changing your terms to what will favor them. You and the property owner will go back and forth a few times and eventually come up with a plan that works for everyone.