You have a lot to consider when you're looking to establish a new office or relocate an existing one. In addition to thinking about location, size and other characteristics of prospective spaces, you need to figure out just how long you want to commit to remaining in your new space. Whether a short or long-term lease is best for your company depends on a number of factors. Examining the advantages and disadvantages of both types of leases can help you make the right decision for your business.
Short Term Leases
Here are Some of the Advantages
Shorter Commitment in Uncertain Times
With 80 percent of businesses failing in the first 18 months, locking a startup into a long-term lease can be a costly mistake. Even established businesses may want to think twice about a lengthy lease given the unpredictable nature of the post-pandemic economy.
Greater Flexibility
Short-term leases give companies room to grow and help them adapt to changes in their business needs. At the end of the lease, you can opt for a smaller or larger space to adjust to changes in staffing. You can even leave the area entirely or consolidate offices as needed.
Here are Some of the Disadvantages
Less Leverage at the Negotiating Table
Landlords tend to prefer long-term leases because they save them the hassle and expense of finding tenants frequently. You may find that your prospective landlord is unwilling to make concessions or add favorable terms to your lease if you're only committing to remain in the space for a short period of time.
Risk of Rising Prices
With a short-term lease, there's a chance that the landlord may decide to raise the rent dramatically after the expiration period, requiring you to look elsewhere even if you're satisfied with the office. This is especially true in the current market. The pandemic has led to many vacancies in once highly-sought areas, and rent prices have fallen accordingly. It's possible that rent will remain low over a long period of time, but some major cities may experience a quick rebound, causing rent to soar.
Long Term Leases
Here are Some of the Advantages
Cost Savings and More Perks
Landlords are eager to attract tenants ready to commit for the long term. That means that you may get a discounted rate on your rent or be able to secure a rent abatement with free rent over a given period of time. Opting for a long-term lease may give you more bargaining power on other terms, such as the tenant improvement allowance.
Easier Strategic Planning
A long-term lease provides security and stability for your company. Knowing that you will be in one place for a long period of time can make it easier to forecast budgets and craft your strategic plan. Although your lease is likely to include rent escalations, your costs will be at least somewhat predictable for the life of the lease.
Here is a Disadvantage
Less Flexibility
A long-term lease takes a lot of flexibility away from your company; however, you can take steps to future-proof even a lengthy agreement. By negotiating for the rights of early termination and subleasing and assignment, you will have options available to you if you need to relocate, downsize or close your office.
Here are a few other articles we think you'll enjoy:
The 3 R's of CRE - Part 1: Right-Size
The 3 R's of CRE - Part 2: Renegotiate
5 Reasons Why Companies Are Fleeing CA and NY for FL and TX
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