Looking for a suitable office space for your healthcare practice takes time, effort, and for many, can be a daunting task—one with astronomical financial implications. Real estate is typically the second highest cost for a healthcare practice. So finding a suitable property at the best possible price and negotiating a lease rate that fits your budget is a must. Unfortunately, it’s not as simple as just reviewing listings and visiting a few spaces.
This is where a healthcare real estate agents come in. One of the keys to successfully negotiating a lease is to take advantage of the free services of a real estate broker or agent. Most landlords are in the real-estate business and tend to have the upper hand when negotiating directly with tenants. But representation (and having someone acting on your behalf with your interests in mind) comes at no cost to the tenant, as the landlord pays for the services of both agents. So, if you’re serious about finding a space that not only meets your practice’s needs and makes sense for you financially, hiring representation can save you significant money in both the short and long-run. While you can represent yourself and do the work on your own, tenants statistically end up paying more by not negotiating the right concessions and terms, and losing during negotiations. Because hiring a healthcare real estate agent is a smart move, consider these ways landlords benefit when you’re not represented.
Remember: Financial gain is the end goal. Even the friendliest landlord—he or she might even be your patient—intends to make the most amount of money possible, renting or leasing a space. Just like the nicest tenant seeks the lowest lease rate. Without representation, convincing tenants that the landlord is looking out for them, that they’re on the same side, becomes much easier—and can create costly financial mistakes for the tenant. Landlords are no more likely to voluntarily reduce lease rates in a renewal or give up extra cash through concessions in a new lease negotiation as you would be to voluntarily pay more for equipment or increase your costs on utilities.
The idea that a lease renewal is not negotiable is a tactic many landlords employ. Any landlord who says the terms for a renewal aren’t able to be negotiated is most likely testing to see how ignorant you are, and doing so to make more money. Or, when you exercise the option to renew, instead of negotiating new terms or specific concessions, they win.
Annual increases in lease rates typically compound year over year, and more often than not, they outpace inflation and cost of living escalations. So when you go to renew your lease, you’re typically paying an above-market lease rate—higher than what a landlord might have listed the space for if it was vacant. Similarly, a landlord is not going to suggest you negotiate concessions when renewing, but a lease renewal negotiation should always contain concessions similar to what you would ask for as a new tenant.
To be certain your lease terms and concessions are the most competitive, understanding market availability and comps is vital. How will your renewed lease rate compare to current market rates? How does your current space compare to other top available options in the market? And that leads us to the next point:
Landlords know that without market knowledge, tenants have no baseline against which to compare a lease offer. Whether you’re renting a new space or renewing your lease at your current location, market knowledge is key to a successful negotiation. Healthcare real estate agents are generally experts on the local commercial market and compile available vacancies, any recently completed transactions in the area, and future available spaces—often properties that are never listed in online databases. Having information about other properties (What are they charging? How do they appeal to you? How does their value compare to others?) will not only help healthcare tenants decide on a new property vs a lease renewal, it’s also vital to the negotiation process.
The only way to effectively negotiate is to ensure the landlord knows you’re pursuing (or have the option to pursue) a variety of spaces on the table. If you’re renewing, you’ll also want to know the lease terms and concessions that new tenants in your building are receiving from your landlord. Creating this type of posture will ensure any terms thrown out to the tenant are truly competitive.
The first question a landlord asks its agent is whether or not the tenant is being represented professionally, and if not, whether they appear to have market knowledge (or in a renewal situation, if they’re willing to leave). If the answer is no, the landlord’s negotiation strategy changes immediately. When working with an unrepresented tenant, landlords will often make an offer that contains margins they’re comfortable with. That way, when a tenant inevitably counters, the landlord doesn’t lose much. But the tenant walks away thinking they’ve successfully negotiated, even at an over-market price point.
Without representation, no one is protecting a tenants’ interests. If any of the above sounds daunting, healthcare tenants always have the option to hire an experienced commercial real estate professional at the landlord’s expense. And as a practice owner or manager, tens of thousands of dollars are on the line, which means it makes the most financial sense to have a professional represent your interests in negotiations and help you find a space that meets your needs and saves you significant money.