Renew your lease or relocate?

That's the big question as you approach your lease expiry.

Written by Peter Evans, National Director, Portfolio & Transaction Management | Occupier Services

With a lease expiry approaching, many organisations face the tough decision of relocating to a new site or renewing their existing lease - a situation commonly referred to as a ‘Stay Vs Go Analysis’.

Relocating is often looked at as an inconvenience rather than an opportunity, and perceived as a disruption to day-to-day tasks, a risk to the production line and a costly exercise for the business. However, if a current site is no longer elevating the success of the business, relocating can present a significant opportunity to re-position the organisations brand, achieve cost savings, improve the company culture and make advances to the overall production line.

On the contrary, if your existing premises is ideal for your business and continues to elevate the success of your organisation, then renewing your lease may certainly be the best option. It is important, however, to ensure the most favourable terms for your organisation is negotiated with the landlord.

Deciding whether to relocate or renew a lease can be overwhelming, particularly for companies with no expertise in property. Listed below are some key considerations to take into account:

Consider the future direction of your business

The most successful companies we deal with ensure their real estate strategy aligns with the overall objectives of the business, this is extremely beneficial when approaching a lease expiry.

Industrial leases typically range from 5-10 years, so it’s likely a lot will change within that period. Think about your company’s objectives over the next 10 years – do you intend to expand, consolidate, shrink? Are you looking to attract key talent and expand your workforce? Are you looking to reduce costs or increase your presence nationally? Do you need to be near certain infrastructure, intermodal locations, rail networks? Do you expect the needs of your customers to change or advancements in technology to impact your organisation?

All these factors should come into play when considering your property decisions and help to identify where you should be located, how much space you need to occupy, what type of facility and fitout needed for your site.

Look at the financial implications

Financial analysis is crucial, be sure to consider the total costs over the term including rent, outgoings, cleaning costs, car parking, fit out and relocation costs, signage costs, landlord incentives and property make goods.

Assess the Impact on Employees

The ‘people’ aspect of a relocation should be a key priority, with the impact on employees, as well as the impact on the organisation’s culture taken into account.

Look at the current workforce, and how much travel time will this add on to the average employee. Think about the pro’s and con’s of a move – would a relocation mean losing staff or would the relocation make your organisation more desirable in attracting and retaining key talent?

Allow 18-24 months in advance of your lease expiry

Tenants should allow 18-24 months to thoroughly assess the best decision for the organisation. By allowing at least 18 months, you increase the leverage you have with your current landlord and other potential landlords, meaning you have a greater chance of reaching a better deal with cost savings, incentives and fitout costs.

Organisations that action begin planning 12 months or less from the lease expiry date typically end up with significantly less cost savings, less incentives and sometimes a higher rent.

Consider using an Industrial Tenant Advisor

As you would appoint an IT expert to deal with your technology matters and a Lawyer to manage your legal matters, if property isn’t your core expertise we recommend considering appointing a Tenant Advisor.

An experienced Tenant Advisor works solely on behalf of the tenant with no commitment to the landlord, they have a strong understanding of the local market and exceptional negotiating skills to ensure the most favourable outcome for your organisation is reached, minimising risk to your business and maximising cost savings. A Tenant Advisor typically achieves significant cost savings not often considered by the tenant.

Consider the above next time your organisation approaches 18-24 months from the lease expiry on your industrial site and to speak with an expert Industrial Tenant Advisor contact Peter Evans, part of the Occupier Services team at Colliers International.

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