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June 11, 2024

Commercial Leases Decoded: Big Data for Big Tenants

The negotiation dynamics are shifting between property owners and occupiers, and occupiers are coming out on top–thanks to technology. Learn how better data management can influence who has leverage in these important conversations.

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In today's battle of commercial real estate negotiations, many property owners find themselves entering the fray with chinks in their armor. Across the table, tenants are coming armed with data-backed insights into their commercial footprint, knowing exactly where to strike and how to walk away with favorable terms.

There are many reasons this dynamic is occurring today—most notably, a growing tech gap. While large tenants, Fortune 500 companies, and prominent retailers have proven to be tech-forward in their approach to real estate strategy, many leading CRE firms remain stuck using outdated tactics. They continue to fight with obsolete tools, leaving them vulnerable in the face of data-driven assaults.

And here’s the double-edged sword: The tech-savvy Fortune 500 tenant is a good tenant. Property owners should want to attract strategic, organized business owners and lock them in with a multi-year lease. However, doing so, with mutually beneficial terms, is proving to require more tact today than in the past. Read on to learn how property owners can close the tech gap and regain negotiation leverage with the power of AI.

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Deal Makers Powered By AI
The Perils of Unpreparedness
Prophia: The AI-Powered Negotiation Partner
The Future of CRE Negotiation Is Here

Dealmakers Powered By Data

The commercial real estate landscape is shifting. Today's tenants, particularly large corporations, Fortune 500 companies, and national retailers, are no longer passive participants in lease negotiations. Armed with sophisticated data analysis tools, they're meticulously combing through their vast portfolios, wielding a deep understanding of lease benchmarks across their entire footprint and by ownership group.

This means they arrive at the negotiating table with a clear picture of market norms for rent, tenant improvement (TI) allowances, rights and encumbrances – essentially, every key term that determines the financial viability of a space.  This newfound leverage, powered by data, can significantly impact ownership groups unprepared to match their level of insight.

The Perils of Unpreparedness

Imagine this: A Fortune 500 company enters negotiations for a new lease. They present a data-driven case, demonstrating that the proposed rent is significantly above comparable properties owned by the same group. They've meticulously researched TI allowances and can negotiate with confidence, knowing the historical trends within the portfolio.

How can property owners counter this? Without data of their own, they are at a disadvantage:

When we think of inventory management, we think about rows of colorful shelves in a grocery store or folded clothes in a store. Rarely do we think about the amount of physical space or processing power it takes to manage merchandise for brick-and-mortar and online stores.

Lack of leverage: Without data on a property's performance compared to similar properties (comps), it's difficult to justify higher rent rates or more favorable terms. Tenants, specifically retailers, can easily play the "we have other options" card.
Money left on the table: Property owners might be accepting lower rents than the market would support. Data on past leases and current market rents helps with benchmarking and negotiating a fair price.

Missed opportunities: Data can reveal hidden trends, like rising rents in a certain area. Without this insight, property owners might miss the chance to capitalize on stronger market conditions and land a better deal.

Inconsistent decision-making: Negotiations become subjective without data. Verifiable information ensures counteroffers or requested changes are based on objective metrics, leading to more consistent outcomes. When data is well-governed and easily shared, it also helps everyone within the organization stay on the same page leading up to negotiations.

Time wasted: Researching comparable properties and looking for patterns throughout a commercial portfolio takes a significant amount of time. Manual data verification is not only error-prone but also extremely time-consuming. Structured and categorized portfolio data allows teams to seamlessly verify important lease language and work on crafting compelling counteroffers.

Prophia: The AI-Powered Negotiation Partner

Understanding lease terms across your entire portfolio is crucial for effective negotiation. Prophia, an AI-powered tool, simplifies this process. It can automatically analyze vast amounts of lease data, extracting key terms and allowing for comparison of lease language across tenants. This comprehensive view empowers you to identify trends and benchmarks within your portfolio, informing stronger negotiation strategies backed by data.

Follow important tenant benchmarks.

Gain a comprehensive understanding of existing tenant commitments, average WALT (Weighted Average Lease Term), rent rates, average TI allowances, and other key terms across your entire portfolio and by competitor ownership groups. This allows you to counter market-related pushback from tenants and replicate or modify terms from existing (accepted) leases.

Discover portfolio-wide lease commonalities.

Prophia's dynamic smart search function eliminates the need for manual analysis. Property owners can easily access and compare key terms from lease to lease, identifying commonalities and saving valuable time.

Uncover hidden opportunities.

Prophia doesn’t only benefit property owners when negotiating with new tenants, our technology’s insights are also helpful in renewal conversations with existing tenants. Allowing users to identify potential concessions or areas for renegotiation within existing leases, creating cost-saving opportunities.

Plan for future events.

Prophia goes beyond static data. It allows ownership groups to see how future tenant changes and lease expirations will impact an asset. This dynamic foresight empowers owners to make strategic decisions at the negotiation table or chart a course for future success.

Build better tenant relationships.

Upholding good relationships with tenants is key to long-term growth. Prophia's ability to support ongoing operations, property management, and leasing demonstrates a property owner’s organization, strategy, and focus on driving revenue. This builds a reputation and good standing among high-quality tenants seeking space.

Level the playing field.

Prophia empowers teams with the same level of transparency and knowledge that sophisticated tenants possess. This level playing field fosters a more balanced and productive negotiation environment. Ownership groups can enter negotiations with confidence, prepared to counter data-driven arguments with their own insights. Prophia's data visualization tools allow for clear communication of key metrics, ensuring everyone on the team is aligned. This transparency builds trust with tenants and helps to cultivate long-term relationships.

Don't Get Blindsided at the Negotiating Table: Empower Your Team with AI

The commercial real estate landscape has undeniably shifted. Tenants are wielding data as a weapon, and property owners who fail to adapt risk losing ground. But there's a solution. Prophia, an AI-powered tool, empowers critical ROI-generating individuals and teams to seamlessly analyze vast amounts of lease data to come away with better insight for stronger negotiations.

By leveraging Prophia, you can gain a comprehensive understanding of your portfolio's performance, identify hidden opportunities, and make data-driven decisions throughout the negotiation process. Don't wait until you're facing a data-driven counteroffer to take action. Embrace the power of AI  and level the playing field in your next negotiation with a prospective tenant.

Hannah Overhiser

Hannah is Prophia's Content Marketing Manager and a seasoned B2B and B2C marketer. Her career began in eCommerce consulting with a focus on code testing. This technical expertise transferred seamlessly to SEO and she started working agency-side as an SEO and Content Strategist. Today, her home is Prophia, and she puts...

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