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7 Common Office Leasing Mistakes
Presented By Mark Rauch
"Hire Character. Train Skill." -Peter Schutz-
When it comes to leasing office space, oversights will negatively impact the economics of the overall transaction thus impacting your business in a big way.
The following list represents seven frequent errors tenants make when leasing office space with my suggestions on how to prevent making them.
1. Lack of Planning: Many tenants aren't clear on what they need. If you're out looking for ten thousand rentable square feet (RSF) but you really require eight thousand RSF or twelve thousand RSF, you've got troubles.
SUGGESTION: Have a space planner do an initial space program to determine your actual space needs. Follow this up with conducting test fit plans on the spaces you are considering. Different buildings have different efficiency's meaning in one building you may need 10,000 RSF while in another 9,200 RSF may suffice saving you hundreds of thousands of dollars over the term of the lease.
A senior level Tenant Rep will have relationships with the top space planners. Most of these planners with conduct an initial space program as a courtesy to the Tenant Rep. The Tenant Rep will then negotiate with the various landlords to cover the cost of the subsequent test fit plans.
2. Not being properly represented: Having an advocate on your side is crucial. A senior level Tenant Rep understands the ins and outs of the market; they are master negotiators, will narrow down the buildings that would be best for your particular needs and their knowledge, experience and advice are indispensible.
SUGGESTION: Be open to the idea of scheduling a meeting with a Tenant Rep that is working hard to meet you. Most Tenant Reps are passionate about representing your best interests and are great at doing so. Many times the only way to establish contact is through a cold call, letter, email or news letter. Meeting far in advance of your lease expiration is a wonderful idea. This will give you an opportunity to get comfortable in the relationship. Remember, the leasing process can take up to a year to complete. This means you will be spending many hours with you Tenant Rep. It's nice to be friends before the process begins.
3. Poor document inspection: A common mistakes tenants make is not being careful with what they execute.
Landlords focus on making as much money as possible on their assets. The lease they give you is not meant to be fair. It is created to make them money.
SUGGESTION: Never sign a lease document unless it has been fully reviewed and negotiated by a competent commercial real estate attorney in conjunction with your Tenant Rep. Your Tenant Rep will have relationships with the right attorneys for the job.
4. Not understanding market Lease Rates : Before negotiating with the landlord get a benchmark of market lease rates and available concessions of similar properties in the chosen geographic areas before agreeing to a particular rate. A senior level Tenant Rep will know this information in addition to knowing how far you can push the envelope with the different landlords on the terms and conditions.
SUGGESTION: Depending on your square footage needs, start the leasing process 6 to 18 months prior to your lease expiration. This will give your Tenant Rep enough time to create a frenzy among the various landlords. This will give you the leverage to drive the economics down as far as possible and the concessions up as far as possible.
5. No Leverage: Landlords are not all-powerful. Landlords need to keep their buildings full. If this means he has to negotiate with his tenants or future tenants to fill his spaces, he will for the most part. Even if you're a five person firm in a million square foot building you have more value than you think. There are only so many big corporations out there.
SUGGESTION: Never take the landlords first proposal. It most probably will take 3 to 5 rounds before you have squeezed all of the water out of the rock. A senior level Tenant Rep is an expert in the process of creating leverage with the various landlords.
6. Hiring a dual agency Commercial Real Estate firm: Tenants sometimes feel that if they're hiring a big real estate company, they'll be better represented.
The big firms that represent both tenants and landlords will argue that they know all the angles. The reality is that Tenant Reps deal with all the various landlords multiple times throughout the year with one focus.... to negotiate the best possible transaction on behalf of their clients. We know exactly what each of the various landlords will agree to in a transaction better than anyone else. When it comes down to it, big dual agency firms will side with the landlord over the tenant. This is because 80% of a dual agency firms revenue is derived through landlord representation. Why would these firms negotiate as hard as they can against a landlord they are looking to get a listing from?
SUGGESTION: When renewing or relocating your office space ALWAYS hire a senior level Tenant Rep.
7. Too Little Time: Tenants drastically underestimate how long it takes to either renew a lease or to move. Depending on how much space you have and how complex your technology is, it could easily take 6-18 months to negotiate your deal - double or triple that if you're really big.
SUGGESTION: Revisit your office space needs on an annual basis. Even if you are in the middle of your lease there are still ways to expand or contract. It is never to early to start planning your next real estate move. Tenant Reps are always motivated to be a resource for you. Do not ever hesitate to contact a Tenant Rep to ask them questions about your current lease, your landlord or the market in general.
Nothing contained herein is to be considered legal advice. Always seek legal advice when evaluating any legal document.
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