5 Best Practices for a Successful Negotiation Strategy
Being a skilled negotiator starts with taking a macro view of the deal and gaining a clear understanding of each party’s needs and wants. Thinking outside of the box can set the stage for dynamic and productive discussions that can lead to mutually beneficial transactions and a solid foundation for a long-term agreement.
Before starting negotiations, one of the first steps is understanding commercial real estate (CRE) lease options, associated costs and the type of CRE lease that best suits each party’s needs. And while negotiations primarily mean a back-and-forth exchange of ideas, there are specific techniques that can significantly contribute to achieving the best possible outcome for both sides. Here are some of the techniques that are sure to enhance the experience of negotiating.
1. Know the Objectives of Both Parties
Having a clear idea of your goals is one of the founding principles of a successful negotiation. At the same time, understanding the other party’s objectives is just as essential for a productive discussion.
By focusing on well-established goals and gaining a clear understanding of what the other party seeks to achieve, you avoid losing sight of the deal’s main priorities, which usually vary depending on each party’s position. For instance, stability and lease term may be the landlord’s or owner’s prime concern, while pricing and location may be what’s essential for the tenant. Clearly defining your own objectives as well as the other party’s goals paves the way for a “win-win” outcome.
2. Negotiate With a Win-Win Approach
In some cases, negotiators can become too preoccupied with achieving their own goals and end up losing sight of the bigger picture. However, negotiating from a win-win position is directly connected to understanding and appreciating how the deal can benefit the other party.
This key technique entails approaching the negotiation process by identifying any issues and pain points and then turning them into opportunities for all parties involved. A creative strategy — instead of an adversarial approach — and a sharp emphasis on finding solutions ensure an efficient dialogue, which then sets the stage for a true win-win situation.
Arriving at a mutually beneficial conclusion also involves identifying deal breakers and keeping them front and center. This entails making sure to avoid touching or insisting on any demands that trespass on deal breakers that may well hamper or even block the transaction.
3. Emphasize Value Creation
A win-win approach to negotiation paves the way for highlighting the value of the deal for all parties based on their requirements and expectations. By identifying and keeping in mind the needs of each party, the negotiation process can reveal elements that one party can conveniently supply that are also valuable for the other party and vice versa.
This strategy requires a comprehensive knowledge of the CRE market, as well as an innovative mindset and a solution-oriented approach. This way, those involved are more likely to close a deal that showcases the potential for value creation. For example, added value from the perspective of the landlord/owner can be the tenant’s future expansion plans. From the tenant’s point of view, it could be a more strategically located building instead of the one initially considered.
4. Leverage the Power of Data
CRE data provides a wealth of information that can significantly impact a deal, meaning that access to accurate real estate data during negotiations ensures well-informed business decisions. This ultimately leads to finding the best business opportunities for all.
That is why leveraging precise data is a key negotiation tactic: extensive market knowledge helps create a strategic plan, get accurate benchmarks and evaluate the deal based on multiple data points. These data points can include but are not limited to:
- Property details
- Ownership information
- Transaction data
- Tenant information
- Demographic statistics
- Market trends
5. Focus on Communication and Transparency
Open and frequent communication, as well as complete transparency, are essential for a successful collaboration: Communication between parties should be timely and documented in order to avoid any future misinterpretation.
During a comprehensive negotiation process, the parties should also clarify any clauses that could lead to potential misunderstandings down the road. These can include:
- Renewal conditions: It is essential for both parties to agree on the duration of the lease. If the agreement includes a renewal option, decide what the renewal conditions are.
- Leasehold improvements: Also known as tenant improvements or buildouts, these changes can be undertaken either by the landlord/owner or by the tenant, so the negotiation process should clearly define the conditions for such changes.
- Lease inducements: Often referred to as lease concessions or tenant inducements, these incentives can encompass rent and expense reductions, first right of refusal and tenant improvement allowances, among other benefits.
- Competitor clause: Common, especially in retail, this clause requires the landlord/owner to obtain the tenant’s consent before leasing space in the building to a competitor.
- Incidentals: Incidental expenses include utilities, property taxes, as well as insurance, maintenance and common area costs and sometimes even repairs. It is important to thoroughly review these expenses and be aware of who is responsible for paying each one.
Strong commercial leases are built on successful CRE negotiations that rely on hands-on and creative strategies. If executed properly, a powerful negotiation process can lead to efficient agreements that open the door to a thriving partnership and long-term business success.
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