If you're currently locked into a commercial lease and want to immediately lower your monthly rent and/or improve your space in advance of your lease expiration, a "blend & extend" strategy could be a smart solution.
The concept is to basically extend your lease in exchange for lower rent, which can sometimes create a win/win for the tenant and their landlord. This strategy is especially effective when current market rents are lower than what the current contract rent is.
Let's say you're currently paying $65.00 per rentable square foot, annually, and the market has fallen to $45.00/sf. However, you still have 18 months left on your lease therefore it's too early to relocate to another building at a lower rate. You could potentially extend your current lease for an additional three years (beginning on the date following your current lease expiration) at the new lower rate, and then blend in that rate, along with any free rent concessions to your current, existing rate, thereby immediately lowering your monthly rent.
There are important factors to consider, however.
The trade-off in lowering your rent today creates potential risk should your real estate needs change tomorrow. Be realistic about how long of a term is safe for you to extend for. Also, be sure to consider what your exit strategy will be if your headcount changes and you need more, or less space during the extension term. Will you have a viable sublease? Can you expand or contract within the current building (or landlord's portfolio) without penalty? Is the reduction in rent even meaningful enough to justify extending the lease?
The blend and extend strategy is by no means a one-size-fits all solution to lower your rent or unlock landlord-financed tenant improvements, but it's worth exploring, especially when there's been a substantial dip in the market and you have a reliable forecast into your company's future.
