Assume you work in the marketing department of a commercial real estate company which specializes in leasing office space to mid and large-sized organizations across a range of industries. The company’s tenant-base includes established businesses as well as start-up ventures. The company’s commercial real estate is located in large, Tier-I metropolitan cities. With COVID-related shutdowns, many office space tenants (companies/corporations) were forced to shift to a work from home (WFH) operating mode for several, if not all, of their office workers. Some furloughed their employees while others had to lay-off a portion of the workforce, on a temporary or permanent basis thereby impacting their office space utilization needs.

As many of these metropolitan cities anticipate exodus of office-space and other tenants for various reasons including COVID-related loss of revenue and or higher operating expenses, space-capacity utilization ceilings, e.g., under 50 percent occupancy, potential of higher city and state taxes due to revenue shortfalls within these localities, etc., commercial real estate companies are finding themselves in a tough operating environment. These organizations not only faced potential loss of tenants, but they also faced constraints in terms of the tactics they can employ to retain and or acquire new tenants. Many office-space real estate companies had to re-negotiate their current lease agreements while others had prospective tenants who either opted-out of their decision to rent office space or deferred that decision to a later time period.

Given the changes brought about by COVID, your office-space real estate company is concerned about sustaining revenue and profitability and has tasked you with developing a negotiation strategy to accomplish the following objective:

1) retain tenants whose lease is coming up for renewal within the next 6 months.

2) minimize revenue loss due to attrition among current office space tenants.

3) leverage the dynamics of an existing relationship to build further goodwill while also accomplishing objectives 1 & 2.

Relevant URLs

1. Commercial Real Estate and REITs at the One-Year Mark in the Pandemic (NAR Presentation)

2. Bloomberg Article - Commercial Real Estate’s Pandemic Pain Is Only Just Beginning

3. CNBC Article - Covid changed how we think of offices. Now companies want their spaces to work as hard as they do

4. CDC’s Employer Information for Office Space

QUESTION - Identify and explain the various sources of leverage/power each party has going into the negotiation. Which tactics will you use to neutralize the leverage/power other party has in this negotiation? Explain your answer.

Answer rating: 100% (QA)

In the negotiation between the commercial real estate company and its office space tenants both parties have certain sources of leverage and power that can influence the outcome Lets explore these sou... View the full answer