"Every day do something that will inch you closer to a better tomorrow" -Doug Firebaugh-
The entire process of leasing office space in Los Angeles could be complicated, time intensive and, frequently, risky. But, these lease strategies for tenants might help. Leasing commercial office space, whether relocating, renewing, contracting or expanding is a vital business decision that produces significant long term expenses. For many companies, the cost of their facility is second simply to employees' salaries and wages. A building needs to be effective for the business, and also the lease document must precisely define, document and allocate the costs.
Think about these ten guidelines before you negotiate for office space.
ONE Carefully evaluate just how much office space your company needs.
Leasing an excessive amount of space is definitely a costly mistake, costing thousands of dollars annually. But leasing not enough space may also be a significant problem that may slow down your business' future growth. You can to get an understanding of your space needs by engaging a skilled Interior Architect to prepare a "Space Program." This Program can identify the areas required by various departments and work groups inside your business. You might have the ability to identify future growth needs and structure your lease to support your expansion needs.
TWO Decide in advance the geographic parameters for your building search.
Important things to consider include proximity to current and future employees. Is visibility or easy highway access important? Do employees travel frequently to customer sites or the airport? Do you want to stay away from major roadway construction? Would you receive more client visits if directions to your space were easy? Do you require a particular city or county mailing address? How important is it to keep your current telephone number?
THREE What type of building or work place do you really need?
What type of image would you like to project for your clients and employees? Would you prefer a conventional multi-story office building having a common lobby entrance and shared bathrooms? Or do you prefer a one-story R&D/Flex type of facility having a separate entrance and possibly a drive-in door within the back? Traditional office structures offer space on a Rentable Sq. Ft. ("RSF") basis while employing a common area load factor of roughly 15% to 20% Percent. This load factor is added into the Usable Sq. Ft. ("USF") from the actual area you occupy and includes the sq footage from the shared building lobby, hallways and bathrooms. Typically in single-story R&D/Flex structures, since Tenants have their own entrances and typically provide their own bathrooms, no load factor is put into the USF.
FOUR Does your organization have particular needs?
Good examples of special needs include heavy parking, fiber optic telecom connections, redundant or back-up energy feeds, back-up emergency machines, exterior signs, above standard electrical energy or heating, ventilation and air conditioning. It is advisable to identify your unique needs early, because the issues might be impossible or very costly to deal with later. The lack of one of these highly variable factors may eliminate a normally acceptable building. It's far better to deal with these problems in advance, not several weeks into the process.
FIVE What's incorporated within the Landlord's rental rate?
It is crucial to recognize not all office buildings lease rates are use the same criteria. Many traditional Southern California office buildings offer rents on a "Full Service Gross" basis, and therefore the cited cost of per sq. ft. each year includes all "Building Operating Expenses," i.e. property taxes, insurance, common area maintenance, janitorial services and utilities. These structures usually provide a "Base Year" for Operating Expenses with the Tenant having to pay their pro rata share for annual escalations (increases) that exceed the price of Operating Expenses within the Base Year, that is most frequently the twelve months once the lease starts.
Other buildings, including most industrial, R&D/Flex structures plus some office structures, offer Tenants what's known as a triple internet ("NNN") lease. Inside a NNN lease, the Tenant pays base rent, plus all Operating Expenses for property taxes, insurance and common area maintenance. In addition, the Tenant usually contracts for and pays individually for its own janitorial and utilities. Some Landlords structure their office rents inside a hybrid fashion using a mixture of Gross and NNN sometimes referred to as Modified Gross. The key factor would be to understand just who is paying for what and to make certain this is clearly referred to within the lease document.
SIX Identify the "real" costs of building out your space.
Since it is rare to locate space that perfectly fits your needs, there's usually some interior construction needed to reconfigure the space. Such construction is called Tenant Improvements ("TI's") or Tenant build-out. This can range from easy new fresh paint and carpet installation, costing $9.00 to $15.00 dollars per sq. ft., to extensive new construction particularly if you consider leasing "raw" space or which has never been built-out which could cost $50.00 to $100.00 plus per sq. ft.
The main factor to comprehend before your lease is signed is exactly what the suggested build out will cost, and also to be aware of how much responsibility the Tenant may have in these costs. Landlords typically provide a TI Allowance per sq. ft. Landlords may negotiate a "turnkey" build out as well. Make sure to understand who will manage the construction and will also be accountable for unpredicted delays or building code problems that may arise.
SEVEN Be careful of Landlords alluring you with reduced rates valid only within the first year of the lease term.
Rarely are lease rates structured with fixed lease rates for the whole term. They have provisions that permit annual increases (known as "escalations") that might be predetermined or may float using the altering Consumer Cost Index ("CPI"). A building's Operating Expenses may even escalate annually. Make certain that you simply view the suggested escalations for the Base Rent and also the Operating Expenses and project and plan for these costs while you move through the lease term.
EIGHT Consider Subleases with both eyes open!
When searching for opportunities, understand that you might encounter both direct leases provided by Landlords and subleases provided by current Tenants that are searching for a Tenant to takeover all or part their current office space. Subleases can provide attractive possibilities, for example free or affordable furniture, phone systems and reduced rental rates. You should realize that a Sublease produces an immediate relationship using the existing or "primary" Tenant, plus an indirect relationship using the Landlord holding the "primary" or "master" lease.
Problems can arise if the primary Tenant defaults at some point throughout the sublease term. Many subleases can be found "as-is," i.e. with no TI Allowance to offset your construction costs. If the financial strength of the primary Tenant is weak, it might be easier to require the primary Tenant to negotiate a "buy-out" of their current lease from the Landlord. This ensures that you are able to strike a "direct" lease using the Landlord. It may be possible to utilize a portion of the "buy-out" to subsidize a lower rental rate, free rent or a greater TI Allowance.
NINE Negotiate the terms and conditions and the language in your Lease document.
A building purchase involves a one-time event with a Seller. An office space lease produces a long-term relationship between the Landlord and Tenant. This relationship assumes on-going duties and liabilities from both parties based on the lease document. Landlords typically have the lease document written heavily in their favor over an array of issues, for example Operating Expenses, TI build-out provisions, liability and insurance matters and Tenant default provisions. However, a lease can and should be completely negotiated to make it much more equitable by hiring a very experienced Tenant Rep as well as an experienced property attorney. These specialists will be in your corner and can produce a massive difference.
TEN Hire a specialist that only represents Tenants and Buyers.
A Landlord typically pays a leasing commission to their "Listing Broker" whether or not you as the Tenant are being represented. There is no shortage of Broker signs placed in front of buildings owned by Landlords. There are inherent conflicts of interest which affect Landlord Brokers when attempting to represent both side of a transaction, particularly if Landlords reward "dual agency" Brokers with building listings for showing their properties.
A pure Tenant/Buyer Representative is not interested in property listings from Landlords therefore can be tough to get maximum benefits and concessions. They are exclusively your advocate. You can expect better, more powerful guidance and impartial advice from a Tenant Representative.
Please contact me to schedule a time to discuss your current office space situation.
