Keeping Your Costs Down Amid Rising Rental Rates

Rental rates are on the rise all over the country and in almost every major market, including the Triangle. In Raleigh, submarkets often range from $26-$34/SF, while popular and highly amenitized areas like Midtown and Downtown, which support growing sectors like tech, are quickly approaching $40/SF. As we approach Thanksgiving, tenants are gobbling up available properties and strategically planning for the coming year.

Here are a few strategies we advise our clients to consider in helping them avoid costly mistakes:

1. Know how your lease terms compare to the current market. Here at RCR, we provide each client with a lease abstract that highlights all the significant financial terms of the lease document in one, consistent, and easy-to-read format. We use this tool, along with current market data, to help each client analyze and compare their current needs to the existing market. Sometimes our data identifies the need to act quickly, and sometimes it solidifies a decision to stay patient. Either way, the combination of data and discussion allows RCR to create a plan and ensure the client has the data to support any decision.
2. Set calendar notices for lease anniversaries and expirations. It is important to make sure any major trigger dates are on the calendar so that nothing slips through the cracks. With our software and tracking systems, we can help you keep organized so no important details go unnoticed throughout your lease term and beyond. Lease anniversaries and the subsequent changes to the terms of your lease, like rate escalations and OpEx pass-throughs, should be discussed with your CFO and management team annually, if not more frequently. This will allow you to manage how budgeted operational costs compare to actual spending, and to identify if any change is needed in future years. If there are any red flags, it is better to handle them sooner rather than later to mitigate undesirable outcomes.
3. Consider how your space needs will change with hiring practices. If your business is ready to hire and expand, you should be talking with your tenant advisor to navigate the best options for both short- and long-term needs as soon as they arise. This could mean a reconfiguration of space or expansion in the short term, all while negotiating market options for the future. On the other side, you may have more space than you need, as new technologies are eliminating existing positions.
4. Watch out for red flags like Estoppel Certificates. One major red flag to watch out for is if your landlord asks you to sign an Estoppel Certificate, which could signal the building is being sold or refinanced. In current market conditions, we see this happening quite often in Class A and B office classes, where new landlords upgrade the building to obtain higher rental rates. Estoppels should always be reviewed in detail by the client, a real estate advisor, and attorney. You should discuss any questions you may have with your tenant advisor, to understand the goals of the new landlord and to assess if your needs are still being met by the space.
5. Take steps to create leverage against landlords. The biggest factor in creating leverage is allowing for a larger timeframe to assess your real estate needs and find market options to meet them. In a limited timeframe, a landlord can capitalize on the tenant’s lack of market options, which can have a huge effect on negotiating optimal lease terms. In today’s landlord market, creating leverage is more challenging than ever. As tenant advisors, we can help you create a thoughtful plan and timeline geared towards achieving your most favorable results.

We have been an exclusive Tenant Advisory firm in the Triangle for almost 30 years.  With expertise in tenant representation, we have the knowledge you need to advise and drive the most effective real estate strategy for your organization.