If you are a small business and need to find and lease office space then this article is for you. The process of leasing office space for small businesses can sometimes be daunting however we have outlined 5 steps on how to find and lease the best space possible.
After reading this you will know:
- How to figure out your budget
- How to determine how much office space you need
- Your options for locating office space for rent
- Things to consider when selecting an office location
- Tips on negotiating an office lease
Step #1: Estimating Your Office Space Budget
Before you get started looking at space you need to know how much monthly rent you are able to afford. Paying too much for rent is one of the two most common mistakes. Leasing too much or too little space is the other. Calculating your monthly rental amount is as simple as rentable square footage (RSF) X rental rate / 12 months. For example if you lease 2,000 RSF and the asking rental rate is $25 sf your calculation would look like this: 2,000 rsf X $25 sf = $50,000 per year. Divide that by 12 months and you get $4,166 per month. We have a handy calculator that you can use for this as well. Calculate your monthly office rental costs. Knowing how much you can afford will help you narrow down your office options a lot faster and keep you from getting sucked into paying for more than you can afford. What you actually pay will differ with each landlord as they all have different types of leases and charges.
Factors That Effect Your Monthly Office Lease Payment
- Class of space – One of the biggest factors that affects the monthly rental costs are the Class of building you lease. Most office buildings are either classified as A, B, or C with Class A properties being the nicest and most expensive. Check out this post on the difference between Class A, B, & C office space.
- Lease term – The longer your office lease term the more negotiating power you have. If you are targeting only a one year lease then be prepared to pay full price…….or higher depending on whether you are in a landlords market or tenants market.
- Vacancy rates – The more vacant space there is the lower the lease rates may be. In a tight market lease rates will be higher than usual.
- View space – If a space has a lot of nice views landlords sometimes charge more rent. Office spaces with fewer windows or less desirable views are typically lower in price.
- Operating expenses (aka triple net or NNN) – A lot of office buildings, especially in Austin, have triple net (NNN) leases. That means in addition to the asking base rental amount they also require that each tenant pay their pro rata share of operating expenses. These charges can also be called common area maintenance (CAM) charges. They typically cover the costs of common area lobbies, restrooms, hallways, etc. Landlord's typically take the total sum of all costs to operate a building (taxes, insurance, maintenance, utilities, etc) and divide that by the buildings total square footage to come up with a price per square foot that is charged to each tenant.
- Tenant improvement allowance – In some cases if a landlord gives you a tenant improvement allowance they may amortize that amount into your monthly lease payment
Step #2: Determine how much office space you need
Knowing how much office space your company needs is also key to narrowing down your search. Check out this office space calculator. It will help you get a general idea of how many sf you need. Make sure you plan according to your current and future needs. If you think you will hire new employees in the next year or two then factor those space needs into your calculation. If you plan on downsizing then consider that as well.
Step #3: Search for office space options
Don't limit yourself in your office search. You ideally want to find 3-5 options that could work for you and then compare each one apples to apples to determine the best fit. There are many ways to find office space however if you don't have the time or expertise to do so on your own then consider hiring a local tenant representative that specializes in office space leasing. With their expertise they will be able to find you the best space and save you a lot of time, headache, and money. They will have in-depth knowledge of your local area and will probably have had experience working with many of the landlords. Check out this post on the best ways to find office space.
Step #4: Choose the best office option that works for your small business
Once you have identified 3-5 good options go visit each one in person and compare each based on location, size, cost, etc. Ask the landlord lots of questions! You need to consider what your ideal location is. Is it more important to locate your office space near your employees, public transportation / major highways, clients, conveniences, or all of the above. Take some time to rank each in order of importance.
Step #5: Negotiate your office space lease
When negotiating an office lease it's good to have a commercial real estate attorney in your corner to help navigate you through all of the jargon. By working closely with your commercial agent and the attorney you will negotiate a better deal for yourself. We have many tips and suggestions on how to negotiate office space leases on our blog. Below are a few of the most popular ones.
- 5 tips on being a strong negotiator when leasing office space
- 5 keys in negotiating office leases
- Ways to make an office lease more flexible
Office space leasing can be a complicated process however if you plan ahead and hire the right advisors you will be able to find the best space, negotiate the best deal, and avoid costly mistakes. If you have any questions don't hesitate to contact us.