In certain circumstances you can renegotiate your office lease before it expires and lock in a lower rent and/or get an additional incentive.
It’s no secret that Australia’s commercial landlords have taken a battering over the past few years. Working from home has fundamentally shifted the demand for office space, and vacancy rates are now the highest they’ve been since 1996.
As a result, landlords are super keen to keep and attract good tenants. This means they’re offering attractive rents and generous incentives. Which is great news if you’re currently renewing your lease or looking for new space.
But what if you still have a few years left to run on your office lease? Is it possible to take advantage of the current tenants’ market and lock-in some savings for your company?
The answer is yes! In certain circumstances, office tenants can use a “blend and extend” strategy to reduce their rent or obtain other financial benefits. Read on to find out how…
Introducing “blend & extend”
“Blend and extend” is an industry term that refers to a mid-term lease renegotiation.
In return for the tenant extending their lease term, the landlord agrees to a lower rent. The current, higher, rental rate is then blended with the new, lower, rental rate for an average rate to pay out through the end of the newly negotiated lease term.
Blend and extend is not just for rent reduction though. It can be used to negotiate other benefits such as:
- landlord’s contribution to fit-out works
- rent abatements
- minimising onerous lease terms – such as make goods
- decreasing or increasing space.
Win-win negotiation
The key to a successful blend and extend negotiation is that it must deliver benefits to BOTH the tenant and the landlord.
As a tenant, you would like lower rent, some money to update your fit-out, to reduce your space, less onerous lease terms, etc. But the landlord’s main concern is avoiding vacant space – they want you to remain in their building for as long as possible.
So, in return for you agreeing to extend your lease period, your landlord may be willing to work with you to negotiate what you want.
When to consider blend & extend
By no means is blend and extend a one-size-fits-all strategy. But it could be right for your company if:
- you have less than 3 years to run on your lease
- you’re happy with your premises and want to stay for an extended period
- you’re seeking cost savings or capital to improve your fit-out
- you want to increase or decrease your current space.
Currently, many Australian companies are concerned that they are paying too much rent or have too much space, or they want to update their fit-out to accommodate hybrid working. So, it can make sense to consider a blend and extend renegotiation.
Negotiation is key
Blend and extend negotiations are tricky. You need to have a good understanding of the current market and show your landlord you’re serious about reducing costs. So, it’s best have a professional with experience in this field on your side.
An experienced tenant representative can do all the legwork and negotiation for you. They will research current rents and vacancies in your area. And they will provide offers for viable space options for your company.
If your landlord fears they may lose you, they will be more likely to work with you to negotiate a mutually beneficial outcome.
To find out if blend and extend is right for your company, please contact us