Before entering negotiations for a commercial space, educate yourself on how negotiations work and the ways you can be a better negotiator. Here are a few terms to know, as defined in the article “Develop Negotiating Skills”:
#1 Market Comparables
Market comparables are the prices of spaces in recent similar transactions. By determining the market comparables for your space, you can have a benchmark to reference for what is roughly paid for those types of spaces. You might use a commercial real estate broker to help you determine these numbers. However, bear in mind that your landlord might make a case for charging a higher price than other recent market comparables if they believe a space offers added benefits beyond those other spaces.
#2 Pricing Power
Both you and the landlord might have pricing power, which is what distances you from competition. For instance, a landlord might be charging a higher price for a space, but might still have more pricing power than another landlord with a lower priced space because they have established themselves as fair and reliable. Or perhaps they are in a better location. You might also have pricing power as a tenant if you have a history of long stable rentals or are a better fit with other businesses on a property than a competing tenant. However, pricing power only goes so far in commercial real estate deals, because often prices are largely determined by the market. Because of this it is still essential for landlords to try to offer the lowest prices.
#3 Deal Points
A deal point is a non-negotiable item that is make-or-break in agreeing to a lease. Both sides usually come to the table with a few deal points, so it is essential to determine early on what these issues are for each party. For instance, a landlord might insist on a certain type of lease, such as triple net, or adjustments to rent that take into account inflation over the years. A tenant might insist on the right to sublease, or a provision that allows them to break the lease if an anchor tenant leaves the property.
An understanding of how negotiations work can help you determine what is truly a good deal for your business or when to walk away.