When to Begin The Lease Evaluation Process

August 17, 2016

Jon Glass

Tech Leader

Corporate Managing Director, Savills Studley

DC/MD/VA Licensed Real Estate Salesperson

Call 202-540-5509

I often tell people that real estate operates on a time dilation different than the real world. It lies somewhere between dog years and the years we experience after turning 30 that seem to fly by in a heartbeat. If you have 2 years left on your lease that may sound like a long time in the real world, but it is a flash in the pan when measured in real estate time.

Regardless of how you measure its relativity, time has one irrefutable effect on the office leasing process: LEVERAGE. Time keeps landlords honest. It reminds existing landlords that your tenancy is not an entitlement, but a privilege. A privilege that must be earned through competition and courtship. Time also allows tenants to be nimble when obstacles arise and opportunities unfold. (Notice I said when, not if. Trust me, obstacles WILL arise during the leasing process).

Even if you are convinced that you will renew your lease at the end of the term, the landlord must be under the impression that you are seriously considering relocating in order to achieve the best economic deal. The biggest mistake tenants make is waiting too long to approach their landlord about a lease renewal. Owners salivate when this happens (and practically drool if you aren’t working with a broker on top of that). Once you get within a certain period of your lease expiration (say 4-9 months), the landlord knows you don’t have enough time to effectively evaluate the marketplace, negotiate lease terms, secure permits, design and build-out space, and so on.

So now the million dollar question; how much time is enough time to properly go through a comprehensive real estate process? Of course this varies on the size and scope of the requirement, but I have created a table below that outlines the major stages of a leasing process and the approximate time necessary to properly complete each stage. Please keep in mind that some of the steps are coordinated simultaneously, so if you are interested in a customized Gantt chart of much greater detail, click here.

Strategic Planning/Space Programming: 1-3 Months
Market Evaluation/Surveys/Building Tours: 1-3 Months
Request Proposals & Negotiate Business Terms: 2-4 Months
Negotiate Lease Document: 1-2 Months
Develop Architectural & Engineering Plans: 1-2 months
Secure Permits & Competitively Bid Pricing: 2-3 Months
Construction/Move-in: 2-4 months

Here is another way to look at it based on square footage leased:

Tenant under 10,000 SF: Begin 9-18 months prior to lease expiration
Tenant 10,000 – 49,999 SF: Begin 12-24 months prior to lease expiration
Tenant 50,000 – 99,999 SF – Begin 18–36 months prior to lease expiration
Tenant over 100,000 SF – Begin 24–48 months prior to lease expiration

Again, this is a very simple way of looking at the process. There are several other important factors to consider such as; i) current and future market conditions, ii) activity occurring in the building and with ownership, iii) condition of space (pre-built vs. shell), iv) growth/contraction plans; v) infrastructure needs, etc.

The bottom line is, if you want to be in a position to negotiate the best economic terms possible, you will need ample time to create leverage. I have negotiated transactions as early as five years in advance of a lease expiration, so you never know what opportunities may unfold to improve your leasing situation. Being that real estate is oftentimes a company’s second largest expense only behind payroll, it is important to have ongoing conversations with your real estate advisor in order to take advantage of opportunities that may arise.

If you have any questions or feedback, please contact us.

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