How to Successfully Renew Your Medical Practice Lease

In 2022, the Houston Medical Office real estate sector expects to see increased demand, tightened supply, escalating operating expenses, and rising construction costs, resulting in higher rental rates. Weighted average asking rents climbed 3.3% during 2021’s second quarter landing at $28.46 per SF, a $1.51/Sf increase from the beginning of the year.  Most submarkets saw rents increase, with the TMC, Pasadena, Tomball, and the Inner Loop posting the lion’s share of the gains. While the traditional office building vacancy is hovering around 30% in the post-covid world, Houston medical office properties only have a 12.3% vacancy rate.

Rising construction costs and ongoing supply chain issues will hinder the ability of practices to relocate, making strategic renewal strategies a critical business focus for any medical business with 2022 lease expiration dates. 

Tenants still have leverage, though, as the cost to renew tenants is far less than backfilling them for Landlords, so keep these tips in mind for your upcoming lease expiration:

Shop around. Before engaging in any negotiating, make sure you’ve shopped around so you can speak intelligently to the market and availability. If you find that you’re in a lease market with many options at lower rents than you’re currently paying, you’re positioning yourself for successful negotiating.

Know your options. Do you have any lease renewal options in your current lease contract? If not, you should be aware that your landlord does not have to renew your lease, although they probably prefer to. If you’re in a competitive market like Clear Lake, The Woodlands, or the Heights, you will want to use a delicate balance for negotiating, so the landlord does not opt to lease your space to someone else.   

Start early. With the current market conditions and construction timelines, tenants need to allow a lot of time to negotiate a new lease contract. Any construction project requiring a permit should budget it to take about six months, so for anyone looking to move, you need to look 9-12 months from your lease expiration date.  Landlords are tuned into this as well, so if you wait too long to begin your renewal negotiations, they’ll likely know that it would be challenging to move in a short period of time. 

Be friendly. The saying that you catch more bees with honey is undoubtedly applicable to your building managers and landlord brokers. As the broker that does the most volume of lease renewals in our Texas healthcare portfolio, I can attest that we work harder for the tenants we have a good relationship with. Most brokers are paid on commission, so they are incentivized to get your deal done in the smoothest way possible.  Knowing you have the same end goal, work with your landlord broker to find mutually agreeable terms for the building owner and you.

Lease renewal time is an opportunity for tenants to review their current situation and make any necessary improvements or adjustments to their lease space. If your space is working great for your practice, you’re already ahead. If your practice needs to expand, downsize, renovate, relocate, or shut down, renewal time is the ideal opportunity to assess your changing needs. Following the guidance above will hopefully ensure the process with be as smooth and stress free as possible.