Austin Office Space: Understanding Lease Rates

Understanding lease termsUnderstanding Lease Rates

In last weeks Cool Tools blog series we shared with you the best way to determine your office furniture needs. Thanks again to our friends at Office Furniture Now! for providing us with this useful info.

Feeling like you don’t know where to start when you read your office lease? Is the renewal your landlord gave you making your head spin? We can help! This week, our tool box is going to provide you with info on how to understand lease rates. Here goes….

Not all commercial real estate properties quote lease rates using the same format. Depending on the type of commercial property you are leasing space from, landlord preferences, and the market you live in, it can sometimes be difficult to understand commercial property lease rates.

Because of this it’s very important to understand the Landlord’s proposed office lease structure when analyzing competing space options. Make sure you and your broker understand exactly who is paying for what and that the costs are clearly described in the lease contract.

Full Service or Gross Leases Office buildings typically have leases structured on a “Full Service” or “Gross” basis, meaning that a quoted rate includes all building operating expenses: property taxes, insurance, common area maintenance, utilities and janitorial, and other building services. These buildings usually offer a “Base Year” for Operating Expenses with the Tenant paying for annual escalations (increases) that exceed the costs for Operating Expenses in the Base Year, which is most often the calendar year when the lease begins.

Triple Net Leases Most industrial, R&D/Flex buildings and some office buildings, will offer Tenants 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. However, in an industrial or flex NNN lease, the Tenant usually contracts for and pays separately for its own janitorial and utilities. In most office NNN leases the janitorial and utilities are included in the NNN.

Retail LeasesRetail properties in Austin typically quote triple net (NNN) leases in which the tenant is responsible for paying its own janitorial and utilities. Retail tenants may also be subject to a percentage rent that requires the tenant to pay a percentage of the gross sales.

Yearly and Monthly Quoted Rates Most industrial and flex properties quote monthly rates, meaning that a quoted price of $1.25 SF for 5,000 SF would cost $6,250 per month (5,000 x $1.25). Most office and retail properties quote a yearly rate, meaning that a quoted price of $20 SF for 5,000 SF would cost $100,000 per year or $8,333 per month (5,000 x $20/12mo)

Electric and Janitorial: In most retail, industrial, and flex properties, as well as some office, tenants are required to pay their own electric and janitorial. Depending on the type and size of space, electric will normally average $1-$2 SF per year, and depending on the size of space and number of days a week one chooses to have service (if they choose to do so), janitorial will average about $1.50 to $3 SF per year.

Again, It is critical to understand the Landlord’s proposed office lease structure and who is paying for what when analyzing competing office space options. If you have any questions at all please don’t hesitate to contact Austin Tenant Advisors to help with understanding your lease! Our service is free to you so contact us now!

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