12 Cost Saving Tips When Leasing Office Space

12 Cost Saving Tips When Leasing Office SpaceLeasing office space is typically one of the top 3 largest expenses your business will have.  By minimizing these expenses your bottom line will thank you later.  Below are some cost saving tips to consider before you start the office space search process.

  1. Start Early – The more time you have to find & evaluate your office space rental options and create competition between landlords the better.  More times than not tenants wait until the last minute.  Don't let this happen to you.  For smaller tenants a minimum of 4-6 months prior to lease expiration will be fine, however for most tenants 12-18 months prior to lease expiration is better.  If you are a large office tenant then you should be evaluating your needs 18 to 36 months in advance.
  2. Don't lease too much office space – Before touring office buildings it's important to sit down with a space planner / architect and complete a program to determine your current and future space needs.  No two buildings are alike (e.g. different load factors, common area square footages, floor plan configurations, etc.) so it's important to determine your optimal square footage needs (your baseline) and compare that to what each office building has to offer.
  3. Create competition between landlords – Many tenants, especially when renewing office leases, make the mistake of not creating competition between landlords.  Buildings owners who realize they are in competition for your tenancy are more likely to be more aggressive with their offers.  Experienced landlords know that tenants renew their leases 70% of the time so it's important that your landlord think you can and will relocate if necessary.  Landlords know that when you have experienced representation you will be thoroughly evaluating the market.
  4. Determine which concessions are most important to you – Rental rates are important however there are other concessions (e.g. tenant improvement allowance, free rent or parking, moving allowances, etc.) to fight for that can enhance your bottom line.  Whether you are a startup or have been in business for a long time there are ways to creatively structure deals that make sense for your business.
  5. Pay attention to your tenant improvement allowance and construction costs – Costs can get out of hand very quickly so to avoid getting surprised with a big bill later on make sure to pay attention to this.  Do not sign a lease until you have a hard construction bid and know exactly what your out of pocket expense will be.
  6. Pay attention to the operating expenses clauses (aka NNN) – Make sure you understand what all is and is not included in the operating expenses (NNN).  Work hard to incorporate caps on the landlord controllable expenses.  Poorly negotiated operating expenses clauses can cost you a lot of money later on.
  7. Pay attention to the renewal option clause – Many tenants don't worry about this because 3-5 years seems like a long ways away.  If you put a lot of money into your space you want to make sure you have control of the space by having the option to renew.  Also make sure you get some say so in what constitutes fair market value, arbitration procedures, and notice periods.
  8. Compare each option apples to apples – Some buildings include electric and janitorial into their rent….others don't.  Make sure you know ALL the costs of each option and compare them apples to apples to you can make the best financial decision.
  9. Pay attention to the sublease clause – Business climates change.  You may need to downsize or may get that big deal and need to relocate so you can take more space.  Whatever the reason having a good sublease option will save you money later on.
  10. Make your lease flexible – Whether you need to expand, contract, or have the ability to cancel you lease it's important that you get those options up front.  Most leases are 3-5 years on average and business conditions can change a few times during that time period.  Having the right to alter your space needs or cancel the lease altogether can potentially save your business or prevent costly or unwanted moves.
  11. Plan for worst case scenarios – If your business depends heavily on a technical aspect of the building and that goes down your business will be impacted.  Make sure you understand your needs and mitigate any potential disruptions that could cost you money.
  12. Hire the right consultants – Landlords hire commercial real estate agents, architects, and contractors that represent their best interests.  Make sure you have third party consultants representing your best interests and make you their priority.

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