Start negotiating months before your lease expires

March 10, 2012

Medical office leases take time to negotiate. See why you need to start the process well before your lease expires.

Q: Real estate lease rates are low now, but are starting to rise. I'm 2 years away from my lease's expiration date. Should I start negotiating now with my landlord for the next lease or wait to see what happens closer to my lease expiration date?

A: If the space in your practice is 10,000 square feet or more, start exploring your options 2 years before the expiration date of your current lease.

Typically, the process of assessing your needs, surveying the market, negotiating a new lease, and building-out space easily can take 18 months for straightforward clinical and administrative space. Lab space requires more time. Even if you plan to renew your lease at your current location, this is a good time to start assessing your options to determine whether a lease renewal is the most economically and operationally sound solution for you.

Similarly, if your assessment indicates that you should move, you may be able to negotiate concessions at a new location that enable you to move before your current lease expires.

Trend data indicate that vacancy rates for medical office buildings (MOBs) are starting to drop. This could mean higher rents in the MOB sector in the next 24 months, so look broadly at your options. A traditional non-MOB office building may suit your needs as well or better, and at a lower cost than an MOB.

If you lease substantially more than 50,000 square feet, you may need more than 24 months to secure a cost-effective new lease. If you lease less than 10,000 square feet, you may be able to conclude site searches and lease negotiations in less than 12 months. Whether the real estate market is good or bad, allowing enough time for the process always increases your leverage as a tenant.

Answer provided by Marisa Manley, JD, Healthcare Real Estate Advisors, New York, New York. Send your practice management questions to medec@advanstar.com Also engage at http://www.twitter.com/MedEconomics and http://www.facebook.com/MedicalEconomics.