Renewal Rates & What You Should Know

Renewal lease rates are skyrocketing and tenants are experiencing sticker shock as they receive renewal proposals from their landlords.

Five years ago, the market had bottomed, Miami’s industrial vacancy had tripled, and landlords were doing everything possible to retain existing tenants and attract new ones. Tenants’ leases often involved many months of free rent, low rental rates, and an abundance of tenant improvement dollars. On average, a tenant could have obtained a 5-year lease on a 10,000 sq. ft., Class B warehouse space in Doral for $6.50 per sq. ft. industrial gross with 2-3% annual increases, receiving almost all the tenant improvement dollars they required.  

Coming back to 2nd Quarter 2015, those same tenants who (with their 3% increases) are currently paying about $7.30 per sq. ft. now face lease proposals at market rates of $9.00 to $9.25 per sq. ft.—that’s beyond a 20% rental rate increase!  

When it comes to lease renewals, not only are landlords raising rental rates to match current market rates, but they have also become tightfisted on free rent and tenant improvement dollars. The majority is not even offering renewal options.

So where does this leave you, the tenant?

Your landlord has a real estate broker representing them and their interests. As a tenant, you need an industrial broker on your side. Your landlord has already calculated that they will compensate a tenant’s broker: If you renew without a broker, that’s just more money in your landlord’s pocket.

What benefits does a tenant representative offer you?

There are two types of industrial tenant representatives. There is the decent broker who is only looking to do a deal with you by locating properties and assisting you in negotiations. Then there is the good broker who adds value to your bottom line; the tenant representative who determines how each property will affect that bottom line and explains the financial advantages & disadvantages of each building. This representative will show you how your business will be financially impacted and whether you will save money when you: 

Utilize cubic feet in the warehouse. Does your broker understand your business well enough to explain the cost per pallet in relation to your warehouse rental rate per sq. ft.? 

Purchase a Very Narrow Aisle system. Does it make sense to invest in VNA forklifts that allow you to use the new 30’+ ceiling heights, cutting both warehouse space and rent by up to 25%? 

Utilize energy-efficient lighting in your warehouse. Is your broker aware of the savings yielded by automated lighting?

Assess the location of your warehouse in relation to your product’s destination. Does your broker know how many containers you move per day, or understand how access to various expressways is vital to your business?

Relocate to exploit tax incentives. Does your broker have relationships with the people who specialize in assisting companies with tax breaks? 

Most industrial brokers do a decent job at assisting their customers in navigating the South Florida industrial real estate market. An excellent broker dives deeper into the deal, helps you understand the advantages and disadvantages of your warehouse space, and, most importantly, adds value to your bottom line.