Why a Recession Could Be a Benefit to Corporate Tenants
Updated: Jun 16
2020 was a unique year, to say the least, with a lot of unprecedented economic uncertainty. As we go into 2021, whether the economy slows down, has a hiccup, or ends up in a full-blown recession, things are going to be changing. While this might seem like a cause for concern, if you are positioned correctly, economic headwinds could present you with opportunity as well.
When economies stall, companies frequently hold off on big decisions. Major moves -- especially capital intensive ones -- get hard to justify when the future is murky. This slowdown can make the people on the other side of the negotiating table more willing to work with you. After all, if you're the only game in town, they need to work harder to get a deal done with you.
Commercial real estate deals can be hard to do in good times. In tough times, tenants or buyers that are active and motivated are in an excellent position to negotiate a strong transaction. Potentially being the only game in town and sitting down with a landlord or owner that is looking down the barrel at long-term vacancy for their space or building is a great place to be.
There is more to negotiating a great deal than just getting low rent or a low purchase price, though. Typically, you can negotiate concessions upfront and benefits (like low rent) during your tenancy.
Maximizing Your Concessions
Landlords realize that moving into new space is challenging and expensive. Typically, they can help to defray the cost of your move in two ways. Some landlords will offer a period of free rent during your move-in period (and sometimes during the beginning of your occupancy as well!). Others will offer a tenant improvement allowance to pay some or all of the cost of customizing the space for your needs. A TI allowance during a recession has two benefits. First, you're getting free money, which is always nice. Second, since contractors might be less busy, you could get your work done at a lower cost, stretching your allowance further than you might expect.
Getting the Best Deal in Tenancy
In a recession, your landlord might also be willing to negotiate favorable lease terms. As we discussed, lower rent is one of these terms, but it isn't the other one. You might be able to get a shorter -- or longer -- lease term than you would otherwise get if you ask. Perhaps the landlord will space out your escalations, or give you options to renew at preferable terms. If you ask, you might get extra parking thrown in, too. While you might not get everything that you request, the less competition you have, the more control you are likely to have over the negotiation process.
Maximizing Your Results
Negotiating in a recession is a good way to get the best deal possible, but how will you know what to ask for? Are you sure that you know a good deal when you see it? If not, you might want to consider working with a commercial broker that specializes in tenant representation of industrial space in your market. Their expertise will help you find the right building and they will manage the negotiation to generate the best outcome achievable in your desired market.
The Industrial Team at ComReal is happy to assist businesses and owners in the leasing and sales of Industrial Properties. You can contact them at 786-433-2380.