When to start the renew-or-relocate decision
Start 12 to 18 months before your lease expires. For an industrial operation that sounds early, but it isn't once you count backwards. A relocation needs time to find and tour buildings, negotiate a lease, design and permit improvements, order racking and, in some cases, bring more power to the building. Each step can take months, and several can't start until the one before is finished. If you begin with six months left, the landlord knows you can't realistically move, and the renewal offer will reflect that.
The date that matters most is often not the expiration date. Check your lease for a renewal option and its notice window. Many options must be exercised in writing a set number of months before expiration, often six to twelve. Miss the window and the option can lapse, leaving you to negotiate with no agreed terms at all. Check the holdover clause too: staying past expiration without a new agreement commonly costs 125% to 150% of the last month's rent, and sometimes more.
A workable sequence: about 18 months out, confirm the notice dates and your space needs. At 12 to 15 months, get a renewal proposal and price real alternatives. By about 9 months, decide, and sign either the renewal or the new lease.
What landlords price into a first renewal offer
A landlord's first renewal proposal is a starting point. It usually reflects the asking rent for comparable space, often with a premium on top, because the landlord knows what moving would cost you. They can estimate your racking, downtime and restoration bill as well as you can, and they know a tenant who hasn't looked elsewhere is unlikely to leave.
The offer may also leave out concessions a new tenant would get: free rent, an improvement allowance, a lower escalation. Landlords count on tenants comparing the renewal rent with their current rent rather than with what the market would offer them as a new tenant. The useful question isn't whether the increase seems reasonable. It's how the offer compares with a real alternative, priced in full.
That is why the first offer is rarely the last. A landlord who keeps a tenant avoids months of vacancy, leasing commissions and the cost of preparing the space for someone new. A credible relocation option, with real numbers behind it, is what moves the offer.
The hidden costs of moving an industrial operation
Moving a warehouse is not like moving an office. These are the costs that most often surprise tenants:
- Racking. Racking has to be dismantled, moved and reinstalled, and the old layout may not fit the new building. Columns sit in different places, clear heights differ, and older racking may not meet current seismic requirements. In many Southern California jurisdictions, racks taller than about 5 feet 9 inches need a building permit, and high-piled storage needs a fire permit that can trigger sprinkler or fire-access changes. Before pricing the move, check that the candidate building fits your operation with the Warehouse Spec Check.
- Permits and inspections. Improvements, racking, signage and sometimes the use itself each need approval. Plan-check times vary by city and can add weeks or months.
- Downtime. Even a well-run move disrupts shipping for days or weeks. Count lost throughput, overtime, temporary labor and any penalties under customer contracts.
- Power. A new building may not have the electrical service your chargers, compressors or production lines need. Utility upgrades and transformer lead times can run many months.
- Overlapping rent. Most moves need a period of paying both leases while the new space is fitted out and the old one emptied.
- Restoration. Your current lease probably requires you to remove racking, patch anchor holes in the slab, take out cabling and fixtures you added, and return the space to its original condition. Read the surrender and restoration clauses early; the landlord can bill you for work you leave undone.
Each of these belongs in the comparison. Leaving them out makes relocating look cheaper than it is.
Net effective rent, in plain English
Two leases with the same asking rent can cost very different amounts. One has three months free and an improvement allowance; the other has neither. One escalates 3% a year, the other 5%. Net effective rent folds all of that into one number: what the space really costs per square foot per month, averaged over the term.
This calculator adds up everything each path costs: rent after free months, NNN, the improvement cost after the allowance, and the one-time costs of a move. It then discounts each later payment back to the start of the term at the rate you choose, because a dollar paid in year five costs less than a dollar paid in the first month. That discounted total is the present value at the start of the term. Divide it by the square footage and the number of months in the term, and you have net effective rent.
A simple example, at a 0% discount rate. A 60-month lease on 10,000 square feet at $1.10 base rent plus $0.30 NNN, with $50,000 of move costs, totals $890,000. Spread over 10,000 square feet and 60 months, that is about $1.48 per square foot per month, although the asking rent plus NNN is $1.40. The extra eight cents is the move. Add three months of free base rent and the total drops to $857,000, about $1.43. Net effective rent shows both effects in one number you can set beside the renewal offer.
It is the fairest way to compare paths with different terms or different amounts of space, which is why the calculator leads with it when the terms or the amounts of space differ. At a 0% discount rate it is simply the total cost spread evenly over the term.
How to use the break-even number in a negotiation
The break-even renewal rent is the renewal base rent at which renewing and relocating cost the same, with everything else held as you entered it. It is your walk-away line, expressed in the landlord's own terms. When the terms or the amounts of space differ, it is the rent at which the two net effective rents match.
Take the example above. If relocating would cost $890,000 over five years and renewing on the same 10,000 square feet carries $0.30 NNN, the break-even renewal rent is about $1.18. A proposal at $1.20 is roughly two cents above it, which is about $10,000 over the term.
If the landlord's proposal is above it, relocating is cheaper on your numbers, and the calculator shows by how much. If the proposal is below it, renewing is cheaper even after counting what a move would cost, and the gap shows how much room there is before the alternative becomes the better deal.
Use it with care. The number is only as good as the inputs behind it, so price move costs with real quotes rather than guesses, and have your broker test the market rent and concessions you assumed for the relocation. You also don't need to share it: telling a landlord your break-even invites an offer just below it. Use it to judge offers, and let a fully priced alternative do the persuading.
A renewal negotiation can move more than base rent. Free rent, an improvement allowance, a lower escalation or a different term all change the cost. Run each counter-proposal through the calculator to see what it is worth.
This is an estimate for planning
This calculator is an estimate for planning. It is not legal, tax or financial advice. It uses the numbers you enter and the rules listed with the results. It does not account for taxes, financing, how the lease is treated in your accounts, or changes in operating costs beyond NNN. Have your lease reviewed by a real estate attorney, and confirm the cost assumptions with your broker, your accountant and the contractors who would do the work.