Who makes the first offer?
Thursday, March 07, 2019
When it comes to commercial leasing, who makes the first offer on a property for lease? The answer might surprise you!
We strongly urge commercial tenants to leave that first offer to the agent or the landlord. The reason is simple. Once you have made that first offer, you will have shared your interest in a commercial property.
By showing your cards (as you will) to the agent, you will have committed yourself to this commercial leasing deal. Imagine yourself shopping for a new car … there’s a great deal of difference between viewing a vehicle for sale on a dealer’s lot and taking it out for a test drive.
You may be tempted to take the lead in your commercial leasing negotiations (and exercise control); however, hold back and let the agent make that first offer.
Once the agent’s first offer has been made, you have a number of options.
First, and foremost, flinch. You want to demonstrate surprise (and, perhaps, disappointment) that the rental cost per square foot is so high.
The agent’s first offer is, typically, set high to allow for some negotiating room. If you, as a potential tenant, just accept that offer, the agent and the landlord are both ahead financially. Instead, begin negotiating by counteroffering a lower amount and settle in for what could be a long ride … many of our successful commercial lease deals have taken many months to come to an agreement.
As another idea (and a lease negotiating tactic after you hear the first offer), you can try stalling. The agent will want you to make a rush decision; however, this will not always work for you.
After hearing the agent’s offer, you can respond by saying something like, “I’ll have to discuss this with my business partner but he’s out of town for the next two weeks.” This will put you in the driver’s seat as the agent must then await your decision.
You don’t always have to verbally stall … you can also physically walk away from the negotiations. You don’t have to jump at the agent’s first offer. Instead, graciously thank the agent and explain that you’ll have to think about it.
A good negotiating strategy at this time is to continue your own site selection and collect written Offers to Lease from other landlords. If you need to, you can show these offers as proof that your tenancy is desired elsewhere — and this may well lead to a much better offer from your first agent.
When making your counteroffer, remember to ask for more than you want. This could be more parking spaces for your staff and customers or more signage. You may not necessarily want to insist on these items … instead, they can serve as “red herrings” and you can give them up (but not too readily) if the agent balks.
When considering an initial commercial lease (or even your commercial lease renewal), remember that you are the customer. Allow the agent to come to you in all matters. By doing so, and letting the agent make the first offer rather than you, your own lease negotiations will likely be far more effective.
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