The Cost of Inertia


Let’s say your car lease is expiring in two weeks and you really like your car.  You walk into the dealership and say to the salesperson, “I love this car;  I’m not looking at any other cars or seeking quotes from any other dealership and I’m not walking out of here today without a new car.”  When the salesperson leaves you to speak with his manager about pricing, which scenario is more likely:

Scenario 1:

The manager feels bad for you and tells the salesperson, “He’s been a loyal customer and he has no time or inclination to look at other cars or seek pricing from other dealers, let’s reward him by giving him the best deal possible.”

Scenario 2:

After the manager and salesperson high five each other, the manager says, “How high do you think we can we go and still keep him as a customer?”

The fact is that most of us would never put ourselves in this situation with a car dealer.   Without competition, there is no leverage for negotiating price.  Nevertheless, thousands of tenants put themselves in this situation every year when it comes time to renew their office leases.  65-70% of tenants renew their leases every year in large part because it’s the path of least resistance and their current space basically works as it is.  Landlords not only know this, they count on it.

Landlords make almost all of their profits on lease renewals. This profit can be two to three times that of a new lease deal because there is no vacancy, little to no new improvement allowance and often no competition to make them sharpen their pencil on the rent.

The next time you start thinking about your lease renewal, think about how you would do things differently if it was your car’s lease renewal.

For more information contact Glenn Blumenfeld

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