💵 How to negotiate rents

Dear Pedal,

I’m opening a bakery and I would LOVE some advice on how to negotiate rents. I read your newsletter so I know the number I see on a flyer is supposed to be negotiated, but how do I know how much to negotiate it? I definitely want to get the best deal possible but I HATE haggling!

Help please!

Bashful Baker [not their real name]

Dear Bashful Baker,

THANK YOU for writing in to us - it’s a great question, so let’s dive in.

My first pro tip is to use a broker - come on, you knew I was going to say that! Brokers negotiate retail deals all day every day - they will have a good sense of what is “market rate,” meaning, the rental rates of similar spaces nearby. But a good broker knows a lot more than what the market rent is at a given time - they will have two big intangibles that you only get with experience: relationships and instincts.

Their relationships with local brokers and landlords will work wonders to reduce the feeling that you’re taking a shot in the dark when you’re negotiating. And years of experience will lend them a gut feel of when to push and when to pull back. If I could give you tips to replace experience and instinct, believe me I would, but there’s really no substitute for a good broker.

Now that I have the easy stuff out of the way, what else can you use to guide your lease negotiations? Why, use your business plan, of course! There are a zillion reasons why a complete and comprehensive business plan is useful, and this is a big one - plug the asking rent into your P&L and see what that does to your numbers. Are you losing money in year one all the sudden? Are you losing more money than you have budgeted for working capital? That, my friend, does not work, so start there!

It’s easier to negotiate when you know exactly what you’re working towards and why, as opposed to negotiating against the fear of getting a bad deal.

My third pro tip is to explore multiple spaces, no matter how much you may like your top choice, because options = leverage. So, if you’re offered way better terms from your runner up than your first choice, you can use that information as a guiding light in negotiating the deal for your first choice. And hey, if it doesn’t work, you have a back-up.

Negotiating can feel super icky and uncomfortable - but it’s unavoidable if you want to get a great retail deal. LOI negotiations are built-in to the retail leasing process, so you can bet your bottom dollar that the first proposal you get from the landlord does not reflect their best and final offer.

And hey, I know a great broker if you’re looking 😉

Abby