Now that you have selected the office space you want to lease the next step is to negotiate the lease contract. One of the items up for negotiation is the lease term. How long of a lease term should your company commit to? This is an important decision and one that should not be taken lightly.
Before beginning your office space search and before committing to a lease contract ask yourself the 5 questions below.
1. Do you anticipate employee growth over the next 3-5 years?
An office space that works for your company today may not work 3-5 years from now. It’s very important to get a grasp on your current and future growth needs before committing to a lease term. You want to also choose an office building that can accommodate your future space needs. If it can’t then you want to stick to shorter lease terms.
2. Does the office need improvements or is it move in ready?
The more tenant improvements an office needs the longer lease the landlord will ask you to commit to. If you need lease term flexibility then expect to pay out of pocket for improvements or pick a space that you can take “as is”. For 3-5 year lease terms landlords are willing to give $$ for improvements since they can recoup their initial costs over the term.
3. Are market rents expected to continue increasing over the next 3-5 years?
Do your homework and know the market. If rents are expected to increase then you might consider committing to a longer lease term to lock in today’s rates. Otherwise expect big jumps in your rent from year to year. If the market is trending down then you might do a shorter lease term and then capitalize on the lower rates later on.
4. Is the office building’s location important to you?
Location is key for some companies. If the office building you lease space in is strategic for you to attract talent and be close to clients, etc., then you will want to consider signing a longer lease. On the other hand if location is not a factor then you can be more flexible with your office lease term.
5. Will I get a lower rent if I sign a longer term?
Not necessarily. However you will increase your chances of getting more tenant improvement allowance and be able to lock in lease rates during a period where they will continue to increase.
Office lease term is only one of the deal points to negotiate on a contract, however it’s an important one. You want to make sure that you have a GOOD handle on your current and future growth needs before committing to a lease term. There is more than one factor to consider so make sure you ask all the right questions to ensure you negotiate a term that can accommodate your company’s needs.
