TENANT’S CORNER

The Power of Competition: Comparing Lease Opportunities

Why the lowest asking rent may not be the best deal.

Last month, we explored how lease incentives influence the true cost of commercial space. We also promised a practical, apples-to-apples comparison. Here it is: three competing office leases, evaluated over the same five-year term.

1. The starting offers

Assume each building offers 10,000 rentable square feet for a five-year (60-month) term. Additional rent is $15/SF/year in each case. Basic rent does not increase during the term, and free rent applies only to basic rent.

2. The five-year cost comparison

Rather than comparing asking rents alone, we deduct free basic rent and the tenant improvement (TI) allowance from the five-year basic rent obligation. We then add five years of additional rent to show the effective total occupancy cost.

3. The surprising winner: Building C

Building C starts with the highest asking basic rent at $25/SF/year. Yet six months of free basic rent and a $20/SF improvement allowance bring its net effective basic rent to $18.50/SF/year—lower than either competitor. On these assumptions, Building C saves $75,000 over five years compared with A and $67,500 compared with B.

That is the lesson: the lowest quoted rent does not always produce the lowest cost.

4. Now let competition work for you

Once we know what each proposal is worth, we can ask the other landlords to sharpen their offers. Building A might offer free rent. Building B might increase its improvement allowance. Even an existing landlord may reconsider its renewal terms when the tenant has credible alternatives.

For example, if Building A offered six months of free basic rent and a $10/SF TI allowance, its net effective basic rent would fall to $16.00/SF/year—below Building C’s current $18.50. The preferred option can change as landlords compete.

5. What an apples-to-apples comparison must still consider

Our illustration assumes that every dollar of TI allowance provides a genuine economic benefit to the tenant. In practice, an allowance may be restricted to qualifying construction costs. If one property requires expensive renovations, or another is ready to occupy, the true comparison can change.

A complete analysis also considers moving expenses, tenant-funded improvements, operating-cost differences, annual rent increases, usable-space efficiency, lease obligations and the timing of cash flows. For larger transactions, a discounted cash-flow comparison adds precision.

The bottom line

The best lease is not necessarily the one with the lowest asking rent. It is the one that delivers the greatest overall value to your business. When you understand the full economics of competing spaces, you can negotiate from a position of knowledge—not guesswork.

Next month

We’ll look at why timing matters, and how starting your renewal or relocation strategy too late can weaken your leverage.

Paramount Real Estate Properties exclusively represents tenants—not landlords. We help tenants compare alternatives, create genuine competition and negotiate terms that support their business objectives.

If you're currently comparing lease opportunities and aren't sure whether the incentives being offered actually represent good value, I'm always happy to help break down the numbers and evaluate the true cost of each option.

Sometimes the differences aren't obvious until you see the entire picture clearly.Let’s ensure your lease supports your operations, protects your flexibility, and keeps you from overpaying.

Book a complimentary 15-minute strategy call and get clarity before you make your next move.

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Mel

Illustrative example only. Figures are undiscounted, exclude applicable taxes and assume all stated incentives are fully usable. “Net effective basic rent” excludes additional rent.