In 2015 the North American economy continues to strengthen, directly translating into lower vacancy rates for commercial properties and leading to higher rental rates and more opportunistic landlords.

Demand for veterinary office vacancies continues to grow

Where we previously saw a flatline in occupancy rates across the country, the improving global economy, despite plummeting oil prices, has dictated an increase in demand for commercial real estate, and an influx of startup and expanding practices. As premium commercial real estate continues to be a hot commodity, rental rates are on the rise and startup animal health professionals, despite higher debt levels than ever before, are prepared to pay.

What does this mean for existing animal health tenants?

Landlords have become more tight-fisted to make up for past years of modest rental increases. Knowing that the market is turning a corner, landlords are using market demand to ask for higher rental rates and are reducing the amount of incentives for existing tenants. They know that if their tenant does not agree to their terms, there are others waiting in the wings that will.

The Landlord advantage

Landlords understand how difficult and expensive it is to relocate an animal health practice, therefore they are sending out fewer notices to tenants with the goal of keeping upcoming office lease expiry dates in the dark.

Upon the lease expiry date, an increasing number of veterinary tenants are accepting whatever terms the landlord proposes so as not to disrupt their practice. This can mean they agree to unreasonably high rental rates and expensive hidden terms, or face eviction, relocating the practice they worked so hard to build, costing upwards of $150,000 in moving expenses.

For many, agreeing to the landlord’s terms is the only choice they can make in order to stay in business.

Be proactive, not reactive

While the competition is very real, proactive veterinarians don’t have to worry about fighting for their space. Though the idea of a gladiator-like showdown may be appealing to some, the reality is that a sensible and proactive approach to lease renewals can save a veterinarian from unreasonable renewal terms.

Prepare for office lease negotiations early

By being conscious of the Tenant Lease Cycle (see illustration), and beginning the renewal process 18-24 months before the office lease expiry date, a veterinarian can position themselves for a stronger, smarter and more favorable lease negotiation, giving themselves optimal time to bring their landlord to the table, assess their goals, and create a negotiation strategy.

By planning ahead, veterinary tenants will find themselves in a seat of power to act in their own interest. They can meet their landlord on equal footing, allowing both parties ample time to present their terms and negotiate a suitable veterinary office lease arrangement that will provide security and long-term practice protection. 

Questions about your office lease or an upcoming negotiation? Contact Cirrus to learn more about how to prepare by calling at 1.800.459.3413 or emailing [email protected].

Author:
Alain Sabbah, Partner, Cirrus Consulting Group

Veterinary Office Lease Negotiation Experts
Alain Sabbah is a principal at Cirrus Consulting Group, a firm devoted to providing office lease negotiation and review services to doctors. He can be reached at 1.800.459.3413 x 3256. For more information about Cirrus, visit them online: www.cirrusconsultinggroup.com/solutions-for-veterinarians.