The question of whether to renew and refurbish existing space or relocate to a new building is one of the most consequential decisions a corporate real estate team makes in any lease cycle. The stakes reach beyond rent per square foot — they touch capital allocation, workforce continuity, brand positioning, and multi-year operating costs. Getting the analysis right requires a disciplined methodology, not a back-of-envelope comparison.
Framing the Decision Before the Numbers Begin
Before a single spreadsheet cell is populated, the team needs to agree on what the decision is actually testing. Many occupier teams make the mistake of treating a renewal negotiation and a relocation search as sequential activities rather than parallel ones. Running them in parallel is the only way to produce a genuine comparison — otherwise the renewal gets evaluated in isolation and the occupier loses negotiating leverage with the incumbent landlord.
The decision frame should answer three questions at the outset: What does the business need this space to do over the next lease term? What is the minimum acceptable physical standard for that use? And what is the organization's true cost of disruption? Those answers set the boundary conditions for every subsequent assumption in the model.
Disruption cost is frequently underestimated or omitted entirely. It includes productivity loss during a physical move, temporary IT and telephony arrangements, changes to employee commute patterns that affect retention, and the management bandwidth consumed by a relocation project. A disciplined methodology assigns a dollar estimate to each of these, clearly labeled as a hypothetical assumption, so that the comparison is complete.
The framing stage should also confirm the analysis period. Most occupier models use the proposed lease term as the analysis window, but that is only appropriate if both options have comparable terms on offer. If the renewal is a five-year term and the new space carries a ten-year commitment, the model must either normalize to the shorter period or explicitly address the residual value and option flexibility embedded in the longer term.
Cataloguing the True Costs of the Current Space
A renewal-with-refurbishment analysis starts with an honest audit of what the current space actually costs and what it will cost after the refurbishment work is complete. Occupiers often know their headline rent but have incomplete data on operating expenses, capital obligations, and the hidden drag of a space that is physically misaligned with how the business now works.
The first layer is the existing lease economics: base rent, rent escalation schedule, operating expense base year and exposure above it, real estate tax obligations, and any above-standard service charges specific to the tenancy. These figures should be pulled directly from the executed lease and reconciliation statements, not from memory or prior-year budgets.
The second layer is the refurbishment cost itself. This requires a preliminary scope of work from a project manager or space planner who has actually walked the floor. Costs to capture include demolition and construction, furniture replacement or reconfiguration, mechanical and electrical upgrades, life-safety compliance work if code has changed since the original build-out, technology infrastructure, and the carrying cost of any swing space needed during the work if phasing is required.
The third layer is the renewal economics the landlord is willing to offer. Tenant improvement allowances, rent abatement periods, and any landlord-funded scope within the refurbishment must be presented as offsets against the occupier's gross cost. Net effective rent — the all-in rent cost net of landlord concessions, amortized over the term — is the right metric for comparing the renewal side of the ledger.
Critically, the refurbishment cost not covered by the landlord's tenant improvement allowance is an occupier capital expenditure. Its treatment in the model matters: some teams expense it in year one, others capitalize and amortize it over the lease term. The methodology should be consistent between the renewal scenario and the new-space scenario to avoid a comparison that is misleading by construction.
Building the New-Space Cost Stack
The new-space side of the model is not simply the new building's quoted rent. The full cost stack includes the lease economics on offer, the occupier's out-of-pocket fit-out costs above any tenant improvement allowance, moving and transition costs, duplicate rent during the overlap period if the leases do not align perfectly, and any real estate commission or advisory costs that fall to the tenant.
Base rent at the new location should be expressed as effective rent using the same methodology applied to the renewal side: gross rent less the present value of all landlord concessions, divided by the lease term in months. This normalizes deals with different concession structures into a comparable figure. Using face rent on one side and effective rent on the other is one of the most common errors in occupier real estate analysis.
Fit-out costs for a new space may appear lower than a refurbishment because the space is delivered in some form of ready-to-occupy or warm-shell condition, but that assumption must be tested. A new-build or recently vacated space may require the full build-out cycle — from design through permitting through construction — which carries both hard costs and a construction timeline during which the occupier is paying rent at the existing space.
Transition costs are real and belong in the model. Depending on the size of the tenancy, these can include physical moving costs, IT infrastructure migration, signage and address change communications, and customer or vendor notification. Each item should carry a specific hypothetical estimate sourced from vendor quotes or internal project history, labeled as such, so that the comparison is auditable.
The new-space model also requires a treatment of the existing lease tail. If the current lease has a termination right, what is the break penalty? If there is no termination right, the occupier must carry dual rent during the overlap or sublease the existing space — and sublease income, if achievable, is a credit to the new-space cost stack that must be modeled conservatively, with an assumption about sublease discount to market and sublease commission.
Structuring the Net Present Value Comparison
Once the full cost stack for each scenario has been assembled, the comparison should be conducted in net present value terms. Effective rent is a useful summary metric but insufficient for a capital decision because it ignores the timing of cash flows. A scenario with heavy upfront costs and low recurring rent has a different NPV than one with low upfront costs and higher recurring rent, even if the effective rents are equivalent.
The discount rate should reflect the organization's cost of capital or its internal hurdle rate for real estate decisions. Using a Treasury rate or a generalized benchmark without reference to the specific organization's cost of capital produces a number that is internally inconsistent with how other capital decisions are evaluated. This matters most when the two scenarios have different upfront capital requirements — which is almost always the case.
Lease net present value should capture all after-concession cash outflows over the analysis period: rent net of abatements, operating expense contributions above base year, capital expenditure on fit-out or refurbishment, moving costs, and any lease-break penalties — discounted at the agreed rate. The scenario with the lower NPV of costs is the more economical choice, all else being equal.
The NPV comparison should be presented as a range, not a single number. Assumption sensitivity is high in this type of analysis: a one-point change in the discount rate, a variation in construction cost of fifteen percent, or a sublease income assumption that proves optimistic can each shift the conclusion. Presenting three scenarios — base case, upside for the renewal, and upside for the relocation — gives decision-makers a defensible view of the range of outcomes.
Scoring Non-Financial Criteria in a Disciplined Way
A pure NPV comparison ignores factors that are real inputs to the business decision but that do not appear directly in the lease economics. Workforce access, building quality, environmental certification, floor plate efficiency, and proximity to clients or transit all affect the value of the space to the business, even if they do not appear as line items in the cost model.
The standard methodology for incorporating these factors is a weighted scoring matrix. The team first agrees on the criteria that matter — typically drawn from the original occupancy brief — and assigns weights that reflect organizational priorities. A technology firm weighting HVAC and power density heavily will score buildings differently than a professional services firm weighting client proximity and meeting suite quality.
Each option — the refurbished existing space and the candidate new-space locations — is scored against each criterion on a consistent scale. The scores are multiplied by the weights to produce a composite score for each option. That composite score is not a substitute for the NPV analysis; it sits alongside it as a measure of strategic fit rather than cost.
The scoring exercise also disciplines internal stakeholders. When the HR team is asked to score workforce access as one criterion among twelve rather than asserting it as the decisive factor, the conversation becomes more structured. When the facilities team is asked to score mechanical infrastructure as a criterion with an agreed weight, the refurbishment scope gets examined through a business lens rather than an engineering one.
A common refinement is to establish a threshold: any option that falls below a minimum composite score on a particular criterion — say, the building's power and cooling capacity for a data-intensive occupier — is disqualified regardless of its NPV. This prevents a financially optimal answer from being selected that cannot actually support the business.
Modeling the Refurbishment Scenario in Detail
The refurbishment component of the renewal scenario deserves its own sub-model because construction costs carry timing, phasing, and contingency risks that a simple headline number does not capture. A rigorous refurbishment model works from a phased scope of work, with each phase carrying a cost estimate, a construction period, and an assessment of whether that phase requires the occupier to vacate any portion of the floor.
Phasing can materially affect the financial model. If the refurbishment can be completed in a rolling sequence that keeps operational areas live throughout, the occupier avoids both the productivity disruption and the swing-space cost that a full-floor evacuation would require. This is a genuine advantage of the renewal path that should be explicitly modeled, not assumed.
Construction contingency should be carried in the model at a rate that reflects the age and condition of the building and the complexity of the scope. Base building work in an older building — electrical panel upgrades, asbestos abatement, structural modifications — carries higher contingency than a straightforward furniture and finish refresh in a modern building. Collapsing these into a single contingency percentage produces a model that understates risk on the complex end.
Landlord coordination during a refurbishment is a real project variable. The landlord's consent process, access restrictions, insurance requirements, and the availability of approved contractors all affect the construction timeline. If the renewal negotiation has not yet produced a signed lease, the refurbishment model should carry a range of scenarios around landlord concession levels, since the allowance quantum directly affects the occupier's net capital outlay.
The refurbishment model should also capture the useful life of the resulting fit-out. A thorough gut-and-rebuild that produces a ten-year physical life is different from a cosmetic refresh that will require another round of capital expenditure within five years. If the lease term is seven years and the cosmetic refresh needs replacement at year four, the model should show the second round of capital as an explicit cash flow, not omit it because it falls within the lease term.
Modeling the New-Space Scenario With Full Transitions
The new-space scenario model is more complex than it first appears because it involves at least two simultaneous lease positions: the target space and the existing lease, which the occupier must manage out. The interaction between these two positions — specifically the timing of when the new lease commences relative to when the old lease expires or is surrendered — drives one of the most significant cost variables in the entire analysis.
If the occupier negotiates a new lease that commences before the existing lease expires, there will be a period of dual-rent obligation. The length of that period depends on construction timelines in the new space and the structure of the existing lease. Even a short overlap of three to four months on a large tenancy represents a material cost that must appear in the model.
Sublease of the existing space during any overlap or tail period is often treated as an offset, but the assumptions embedded in that offset deserve scrutiny. Subleasing requires landlord consent in almost all cases, may be subject to market conditions that differ materially from the occupier's lease rent, and carries its own transaction cost in the form of broker commissions and tenant improvement costs for the sublessee. Each of these should appear as an explicit line item.
The new building's operating expense structure may differ from the existing space. A newer building may have a lower base-year operating expense exposure but higher management fees or a more aggressive escalation cap. An older building may have lower face rent but higher utility and maintenance costs outside the lease structure. Both sides of the comparison should use a fully loaded operating cost per square foot, not headline rent alone.
Technology migration deserves a dedicated line in the new-space model. For occupiers with significant infrastructure — trading floors, server rooms, specialized laboratory or broadcast facilities — the cost and risk of migrating technology to a new location can be a deciding factor in the analysis. Even for standard office tenancies, voice and data infrastructure, security systems, and audio-visual systems represent real costs that should be sourced from internal IT and not estimated from general benchmarks.
Presenting the Analysis to Decision-Makers
Senior stakeholders responsible for approving a lease commitment need to understand the range of costs, the key assumptions that drive the comparison, and the conditions under which the conclusion would change. They do not need every cell in the model — they need the architecture of the analysis to be legible.
The analysis output should be structured so that it functions as a decision document rather than a data dump. That means leading with the decision frame and the assumptions, then presenting the NPV comparison by scenario, then layering in the weighted score comparison, and closing with a sensitivity table that shows how the preferred scenario holds up if one or two key assumptions move against it. That sequence respects the intelligence of the audience and surfaces the material risks without burying them in detail.
Assumption transparency is not optional. Any adviser who presents a recommendation without showing the assumptions has produced analysis that cannot be reproduced or challenged, which means it cannot be trusted. Each major input — discount rate, construction cost, sublease probability, escalation rate, effective rent — should appear in the document with a note on its source: market data, vendor quote, organizational policy, or labeled hypothetical where none of those apply.
That documented rationale becomes part of the transaction record that can be reviewed by finance leadership, legal counsel, or an audit function.
The recommendation itself should be conditional. Presenting "we recommend renewal if the tenant improvement allowance reaches X, and relocation if it does not" is more useful than a binary answer, because it gives the negotiating team a clear mandate and a clear threshold. Lease-economics modeling is most valuable when it converts a qualitative debate into a negotiated variable.
Maintaining the Model Through Negotiation
As negotiations progress on both sides — the renewal and the relocation alternatives — the model must be updated with actual terms as they emerge. A methodology that treats the model as a living document, rather than a snapshot, is the only approach that keeps the decision-makers working from current information.
When the incumbent landlord submits a revised proposal, the new terms go into the renewal scenario and the NPV is recalculated. When a new-space landlord revises the tenant improvement allowance or the rent commencement date, those changes go into the relocation scenario. This parallel-track updating is what gives the occupier genuine comparative intelligence rather than a stale snapshot taken months before a decision is due.
Every time the model is revised with new negotiated terms, the prior version should be preserved so that the team can trace how the comparison has evolved. This protects against the common situation where a stakeholder recalls that "the numbers looked different last month" and no one can explain why. A clear version log — date, what changed, source of the change — prevents those conversations from derailing the process.
Preserving prior versions also matters for institutional memory. When questions arise during lease execution, diligence, or renewal of the new lease years later, the analysis that drove the original decision will be a valuable reference. Organizations that treat the model as a disposable working file consistently lose institutional knowledge that would have been worth preserving.
The final version of the model, used to support the executed letter of intent or lease, should be archived as a permanent part of the transaction record alongside the lease itself. This is a governance practice, not a technical requirement — but teams that follow it are consistently better positioned when decisions are revisited under new leadership or in new market conditions.
Governance and Approval Workflow
A financial model for a lease decision of this magnitude should travel through a defined approval workflow rather than circulating informally. The governance layer protects the organization by ensuring that the right stakeholders have reviewed the assumptions, the right authorities have approved the commitment, and the analysis record is complete before execution begins.
The typical approval gate sequence moves from the real estate team's internal review, to finance validation of the discount rate and capital treatment, to a cross-functional review that includes HR, IT, and operations, and finally to the executive or board approval required by the organization's delegated authority policy. Each gate should produce a dated record of what was reviewed and by whom.
Scenario approvals are distinct from final approvals. Getting sign-off on the shortlist and the analytical framework early — before the team has invested months in negotiation — prevents the situation where a preferred option is rejected late in the process because the approval authority was not aligned on the decision criteria. Building governance into the methodology, not bolting it on at the end, is what separates a disciplined process from an ad-hoc one.
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