What Today’s D.C. Tenants Should Consider Ahead Of Their Lease Expirations

Washington, D.C., office tenants facing lease expirations should explore their options early and be transparent with landlords to maximize leverage, yield better experiences for employees and reduce costs, a broker experienced in the area’s office market says.

This advice from Anna Shaffer, managing director in JLL’s Washington, D.C., office, comes as many office occupiers are weighing whether to relocate, renew or rightsize their existing space. Shaffer specializes in tenant representation, and her clients include government contractors, media and technology companies, associations and nonprofits.

“Both landlords and tenants are working towards a common goal, and both are realizing lease negotiations are going to take more time than they used to,” Shaffer said.

Whether they are reinvesting in their space or joining the flight-to-quality bandwagon and relocating, companies are surveying their employees and working to put that feedback into action.

Many companies are moving away from a 100% hoteling model to alleviate their employees’ Sunday night “hoteling anxiety” about where they will get to sit that week, Shaffer said.

“If an employee commits to coming in at least three days per week, they are often getting a dedicated, albeit shared, office,” she added. “Companies still offer workstations that employees can book, and they continue to incorporate more cafélike collaborative spaces with background music and comfortable seating where employees can meet in person or take a videoconference call solo.”

The strategy, summed up in the phrase “less space, more place,” translates into a reduction in total square footage. Shaffer said this often means a higher cost per square foot but results in an elevated experience for the client’s employees.

That experience can include new furniture, better lighting, more and better building amenities and transit options, or more parking. It can also mean creating larger conference rooms and doing away with a big bullpen. 

The goal? Less wasted space and a warmer, more inviting environment to draw people in.

“Companies are looking inward to determine what they want and are being vocal about it,” Shaffer said. “There’s no downside to starting these conversations early and discussing any issues you have with your current space. Adding that crucial window of time allows the tenant to create leverage and allows landlords to put their best foot forward.”

Ensuring the tenant’s existing landlord is fully looped in on the timing and process of a tenant’s search ahead of lease expiration ensures they also have the time and information to put together a compelling offer. 

“It’s important to keep those lines of communication with the landlord open,” Shaffer said. “It takes time for a landlord to put together their best offer. More time equals better options.” 

One of those better options is a move away from use-it-or-lose-it terms in the tenant improvement concessions that landlords offer, Shaffer said. In a reflection of market conditions and the changing nature of lease negotiations, more landlords are allowing tenants to put unused tenant improvement allowances toward future rent.

“Tenants should be aware that this is an innovation in lease terms that they can ask for,” she said. “You only get what you ask for.” 

Given the extreme fluctuations in construction material and labor costs in recent years, renovation budgets have been ballooning in the period between signing a lease and completing and paying for the work.

Some tenants are opting to put a pause on renovations, either indefinitely or until costs stabilize, and instead use those funds to reduce their rent costs. It’s a win-win, given that the landlords already budgeted for that cost, Shaffer said. 

“There’s nothing worse than, after spending a year or two negotiating terms and a large concession package, for your tenant to lose it if they haven’t used it within a year,” Shaffer added. “Luckily, tenants oftentimes don’t have to face the problem of ‘use it or lose it’ anymore.”

One company that didn’t wait for its lease to expire to open a dialogue with the landlord was a media client of Shaffer’s, one of the nation's largest TV broadcasters.

Two years before its lease was set to expire, the client began weighing whether to relocate to another building in D.C., ideally a Class-A property, or to sign a new lease with its existing landlord in its longtime building.

“Their existing building had a lot going for it,” Shaffer said. “It was walking distance to the Metro, it provided excellent vehicular access to Maryland and Virginia, and it was next to a park that functioned as a noise buffer. They knew the location worked.”

The company wanted to shrink its footprint while maintaining a separation between its major departments.

“They were paying slightly above market rent and had too much underutilized space,” Shaffer said. “The company saw an opportunity to reduce costs and ideally avoid a cost- and time-sensitive move.”

Because the company started its process so far in advance, it allowed every landlord to “put their best foot forward.”

In the end, the landlord offered terms attractive enough to entice the company to stay. As part of the new agreement, the company consolidated its footprint to one floor from two while lowering its cost per square foot.

The result isn’t that unusual. When there is an opportunity to reduce costs by staying in place, it makes a decision to move that much more difficult, Shaffer said.

One of the key factors that kept the company in its existing space was the concessions package the landlord offered.

“Being a large tenant with good credit looking for long-term space, they were going to get concessions no matter where they went,” Shaffer said. “But the tenant improvement package their landlord offered, which included the ability to put unused tenant improvement dollars towards rent, ultimately prompted them to stay.”

The result? A better environment for employees, a 20% reduction in base rent and a 34% reduction in average annual spend, she said.

To learn more about effectively navigating an office lease in Washington, D.C., click here.

This article was produced in collaboration between Studio B and JLL. Bisnow news staff was not involved in the production of this content.

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