Leasing office space is a complex procedure that is time consuming and uncertain.  Whether for a relocation, renewal, contraction or expansion leasing commercial office space is a business decision that creates substantial overhead costs.  Most companies consider the cost of their facility to be second only to employees salaries.  The lease document must define, document and allocate the projected costs. 

Before you negotiate your office space transaction consider the following ten leasing strategies.

#1 Geographic Boundaries  

Factors to consider include proximity to current as well as future employees.  Is visibility or easy freeway access important?  Do your employees travel often to customer sites or to the airport?  How often will clients visit?  Do you need a specific mailing address in terms of city, county, street or building?  Is it critical to maintain your current phone number?

#2 Actual Square Footage Requirement

Leasing too much space can be an expensive mistake costing thousands of dollars per year however leasing too little space can also be a serious problem that can get in the way of your future growth.  Get an experienced Interior Architect involved early in the process.  They are experts at preparing a space inventory or "Space Program" that will help identify the space needed by various departments and work groups in your company.  Doing this will identify future growth needs so you can structure your lease to accommodate your expansion needs.

#3 Special Needs

Special needs include over standard parking, fiber optic telecom connections, redundant or back-up power feeds, back-up emergency generators, exterior signage, above standard electrical power or heating, ventilation and air conditioning (called "HVAC"), high ceilings.  It is critical to identify your "must have" requirements early, because these issues may be impossible or very expensive to address later.  The absence of one of these factors may eliminate an otherwise acceptable building. 

#4 Type Of Office Building Or Office Space

What kind of image do you want to project to your clients and employees?  Do you prefer a traditional multi-story office building with a common lobby entrance and shared restrooms?  Do you want a "Class A" building that offers a concierge, valet parking, many amenities, a magnificent lobby etc. or is a lower profile preferred.  Do you want a high-rise, mid-rise, low-rise or campus environment?  Would you prefer a single-story flex-type of facility with a separate entrance ? 

#5 What Is Included In The Rental Rate?

Not all buildings are priced using the same format.  Many traditional office buildings offer leases on a "Full Service Gross" basis, meaning that the quoted rate of per square foot per year (or month) includes all Building Operating Expenses i.e. property taxes, insurance, common area maintenance, janitorial services and utilities.  These buildings usually offer a Base Year for Operating Expenses with the Tenant paying for annual escalations (increases) that exceed the cost of Operating Expenses in the Base Year, which is most often the calendar year when the lease begins.

Other buildings offer Tenants what is called a triple net ("NNN") lease.  In a NNN lease, the Tenant pays a Base Rent, plus all Operating Expenses for property taxes, insurance and common area maintenance.  In a NNN lease, the Tenant usually contracts for and pays separately for its own janitorial and utilities.  It can get confusing though, because some Landlords structure their office leases in a hybrid fashion by using a combination of Gross and NNN methods.  The important thing is to understand exactly who is paying for what and to make sure that this is clearly described in the lease document.

#6 Landlords Tantalizing You With Low Initial Rates

Most leases have provisions that allow annual increases called escalations that may be predetermined or may float with the changing Consumer Price Index ("CPI").  A building's Operating Expenses will also escalate annually but a smart Tenant can sometimes negotiate a "cap" or ceiling on such increases.  Make sure that you understand the proposed escalations for both the Base Rent and the Operating Expenses and then project and budget for these costs as you proceed through the term of the lease.

#7 Consider Subleases With Both Eyes Open

When looking for properties, understand that you may encounter both direct leases offered by Landlords and subleases offered by current Tenants, who are looking to unload all or part of their current leased office space.  Subleases can offer attractive opportunities, such as free or inexpensive furniture, phone systems and greatly reduced rental rates.  It is important to understand that a Sublease creates a direct relationship with the existing or "primary" Tenant, as well as an indirect relationship with the Landlord holding the "primary" or "master" lease. 

This should be fine if the primary Tenant is financially stable although problems can arise if the primary Tenant goes into default during the term of your sublease. 

#8 Be Aware Of The Real Costs Of Constructing Your Tenant Improvements

Because it is rare to find space that perfectly fits your requirements, there is usually some interior construction required to reconfigure the space for your use.  Such construction is known as Tenant Improvements ("TIs").  These TIs can range from relatively simple new paint and carpet installation to extensive new construction.

The key point to understand before your office lease is signed is what the proposed build-out will cost and to be clear on how much responsibility the Tenant will have for these costs.  Landlords typically offer a TI Allowance per square foot that is included as part of your quoted lease rate.  The TI Allowance is  subject to negotiation and typically increases with the length of the lease term.  The idea is to negotiate enough of an allowance that will cover the entire build out.  If over standard improvements are needed, more dollars can be negotiated but it will likely be amortized into the lease rate over the term of your lease.  Determine who (Tenant or Landlord) will manage the construction and will be responsible for unexpected delays or building code issues that may arise.

#9 Engage A Professional That Specializes In Office Tenant/Buyer Representation

Make no mistake about it, Landlord Reps represent the Landlord first and foremost.  They were hired specifically to get the highest lease rates and the lowest amount of concessions.  Even if the Landlord Rep does not have a listing on the particular building being negotiated on, their mindset is to get listings and will therefore not want to hamper any potential future relationships with all Landlords.  Tenant Reps on the other hand have a very specific and focused niche.  That is to negotiate the lowest possible economics and the most amount of concessions on behalf of business owners.  Tenant Reps know the market and fully understand the leasing rates.  They also understand what types of concessions Landlords may be making at any given time i.e., free rent, tenant improvement amounts, free parking, operating expense exclusions etc.  It is easy enough to google what the leasing rates might be in an area but these are just "asking rates" and are usually not the "actual rate" achieved.  It is not easy to find what concessions are being given at a particular time or location.  Tenant Reps understand how much to push for concessions in the negotiation process because they continually deal with Landlords.  Concessions are usually confidential from deal to deal so only Brokers and Landlords know what these are.  Hiring a Tenant Representative costs the Tenant nothing.  Why wouldn't a Tenant want an expert in the field to negotiate on their behalf at no cost.  Some say the cost ends up in the real estate deal.  Perhaps some of it does, but the value add brought to a Tenant is huge in savings.  A Tenant will never know if they got a good deal or not without a Tenant Rep on their side.

#10 NEGOTIATE NEGOTIATE NEGOTIATE

Compared to a building purchase, which involves a one-time event with a Seller, an office lease creates a long-term relationship between the Landlord and Tenant.  In this relationship, both parties assume on-going responsibilities and liabilities as defined by the lease document.  Landlords typically design leases to be heavily skewed in their favor over a wide range of issues, such as Operating Expenses, TI build-out provisions, liability and insurance matters and Tenant default provisions.  However, a lease can be thoroughly negotiated, much more than you would expect.  If you want a more equitable lease, having an experienced Tenant Rep and an experienced real estate attorney on your side will make a huge difference.

Please contact me to discuss your office space needs.