[industrial] How do negotiations go for when asking for rent above market?
Question for those negotiating leasing.  What are conditions where a lease ends up higher than market?

At my company, what I hear is that everybody bases their rents on market comps. It makes sense, but how do the conversations go when negotiating rent higher than the market comps. (I’m essentially asking how does that first deal above market get made?)
[{"id": "hlpo1m7", "text": "When demand &gt; supply , limited inventory leads to higher prices and tenants offering above ask to secure lease", "replies": [{"id": "hlpp8gl", "text": "So a hypothetical might be, hey there are 3 other potential tenants looking for this type of space, but there\u2019s only 2 available and the area is already built out so no new supply coming online?", "replies": [{"id": "hlppdqt", "text": "Exactly", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hlprfxi", "text": "You have to highlight the positives of your particular listing: Location, building features, items included, etc.", "replies": [], "depth": 1}, {"id": "hlpv6rp", "text": "You base asking rent on what comps are and what your building is like. Shitty class c with poor loading going for 1.15? Well I have higher ceilings and better dock doors and freeway access so 1.35.", "replies": [{"id": "hlq5mhq", "text": "Sure that all makes sense, but how bout in this market where you go, normally I\u2019d go 1.35 for this class A, but there\u2019s so much demand I\u2019ll put out a 1.45 proposal instead. Is it as simple as that?", "replies": [{"id": "hlq729r", "text": "You rep the tenant or the landlord? If the landlord you tell him you think you can get above market and put the price as tbd. If the tenant, depends on the credit. The better the credit the closer you can get to asking otherwise you have to go above market to get the deal done.", "replies": [{"id": "hlq9zmf", "text": "Gotcha, I\u2019m on the landlord side of it.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hlq2z9t", "text": "A building with specialized amenities/equipment/space for a specific use. Newer and nicer than old stock on the market. Specific location a tenant wants or needs.", "replies": [], "depth": 1}, {"id": "hlq6b4t", "text": "Above market basically never happens. Why would it? \n\nAbove recent comps makes sense when prices are going up. To go up, something must be new high. That property will logically be higher than any recent comp. \n\nWhen prices go up negotiations go like this:\n\nRenter: why are you charging $100 when that guy charged $90? \n\nLL: ok go rent from them. \n\nRenter: can\u2019t it\u2019s rented.\n\nLL: ok go somewhere else. \n\nRenter: can\u2019t those are rented too. \n\nLL: my price is $100.\n\nRenter: ok I\u2019ll do $100\n\nLL: sorry I rented to someone else for 100. Bob down the street has one for $110.\n\nThe main reason rents go up is because there are more people that need a place than there are places available.", "replies": [{"id": "hlq92s5", "text": "Gotcha, yea thanks for the hypothetical conversation, it was a great illustration.  I guess it\u2019s as simple as being willing to let them walk.  It probably behooves a landlord to know how many potential tenants are looking then", "replies": [{"id": "hlqa335", "text": "Absolutely, a LL or their agent needs to know the market. And in a downturn things work the other way. Sometimes units will rent for loss just to stop the bleeding.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hlqezly", "text": "I'm surprised no one has mentioned a fairly common scenario where the agreed to rent on a deal is \"above market\" - when the landlord buys up the rent by building to suit or contributing an above market amount in tenant improvement allowance or landlord work to the deal. This happens fairly regularly in NNN retail leasing. So a negotiation in this scenario, assuming $20/sf NNN rent is market, might go like this:\n \nLandlord Proposal #1: $20/sf NNN rent, $20/sf in TIA\n\nTenant Counter #1: $22/sf NNN rent, $50/sf in TIA\n\nLandlord Proposal #2: $25/sf NNN rent, $30/sf in TIA\n\nTenant Counter #2: $23/sf NNN rent, $34/sf in TIA (deal agreed to)\n\nGenerally, though, market's get pushed up when demand outstrips supply. More tenants chasing space in the best locations than there are spaces available.", "replies": [{"id": "hlqgpw3", "text": "Oh man, TI\u2019s opens ip another can of worms for me in terms of questions. \n\nBut I can see that TI\u2019s are a good way to raise base rent (and help set the market) without necessarily having to divulge how much went into TI\u2019s.\n\nQuestion for you.  How do you think about the tradeoff between TI and rent? And for that matter free rent.  There\u2019s obviously a direct $ link. I don\u2019t think anybody actually is pulling out the calculator and saying, I\u2019m giving them an extra $5/sf in TIA, therefore to make that back exactly, I\u2019ll raise starting rent $1/sf over 5 years(ignoring escalation). Unless they do", "replies": [{"id": "hlqiudi", "text": "&gt;How do you think about the tradeoff between TI and rent?\n\nIn a vacuum, assuming strong credit, I'll trade giving more TI for higher rent 10 times out of 10...Up to a point. At some point no matter how strong the tenant or underlying credit, too much is too much.\n\n&gt;And for that matter free rent.\n\nI make my 5 year leases 5 years + 3 months, 10 year leases are 10+5 months etc. First 3 or 5 months are free rent but I still get the full 5 or 10 years of rent.\n\n&gt;I don\u2019t think anybody actually is pulling out the calculator and saying, I\u2019m giving them an extra $5/sf in TIA, therefore to make that back exactly, I\u2019ll raise starting rent $1/sf over 5 years(ignoring escalation). Unless they do\n\nThis definitely does happen, in my experience. It's far from the best way to evaluate your spend and return, but I do use it as a quick way to evaluate a counterproposal off the bat. on the LL side, put a cap rate on the increased rent you'll be getting. 9 times out of 10 it'll be worth it to kick in the extra $.", "replies": [{"id": "hlqklez", "text": "Just realized this is tagged industrial. I\u2019m a retail guy so take all with that I mind!", "replies": [], "depth": 4}, {"id": "hlql6ts", "text": "Appreciate the insight!", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hlr9ud2", "text": "They go fine.\n\nThe tenant says \"*yes*\" and I indicate where to sign.\n\nThe tenant says \"*no*\" and I say \"*thank you for stopping by\"*.", "replies": [], "depth": 1}, {"id": "hlrajee", "text": "\"Market rent\" is a vague term that people treat as a definite amount.  Market forces determine the price, but every building is unique and the market is constantly changing. I hate when an asset manager tells me a deal they did was \"above market\" .  No.  It wasn't.  You bought up the face rate with TI and spent a bunch of money on \"Landlord Work\" that you are conveniently leaving out of the TI number.  You aren't special.  Your deal isn't special.  Your net effective rent is exactly the same as the last 3 deals in the building.", "replies": [], "depth": 1}]