Leasing office space is one of the largest operational expenses your business will have and it's much more complex than renting a house or apartment which makes the process a bit more stressful. Most office space leases will be 3-5 years long and the thought of that can be intimidating for many because they are not sure what their revenues will be like in the future.
Because of that it’s important that you ask all the right questions to make sure the space(s) you are interested in meet your company’s current and future business needs. There are a lot of factors to consider during the search, selection, and negotiation of office space so to help you get started we listed a few questions to ask when renting office space from landlords.
Questions to Ask Landlords About Office Buildings
1. What is Your Quoted Office Space Rental Rate?
There are a ton of online office listing websites and most of them display outdated or inaccurate info or don't provide all the info needed to make an informed decision. Most rates are part base rent and part operating expenses (e.g. taxes, insurance, common area maintenance). Be sure to ask each landlord what their asking base rent and estimated operating expenses are for the building.What all is included in your rental rate (e.g. electric, janitorial, operating expenses, etc..)?
2. What all is included in the rental rate?
Some office buildings charge a rate that includes electric and janitorial costs. Others may require the tenant to pay for those. In a free standing office building you may be responsible for all HVAC repairs and replacement. Bottom line is you never know until you ask what ALL is included, and get it in writing. Don't sign a lease thinking everything is included then find out you have other expenses that exceed your ideal monthly rent budget.
3. Will you give free rent?
You never know until you ask however keep in mind it all comes down to total cost. If the landlord is giving you a large tenant improvement allowance they may not have much in the budget for free rent. If you are taking a space “as is” or are paying for tenant improvements out of your own pocket then you have a better chance at negotiating free rent.
4. What is the common area factor for the building?
This is good to know because you want to make sure the building doesn't have an excessive amount of common area. Most office buildings will average 17% to 21% common area factor (aka add on factor). Also you will pay rent on the rentable square footage usable (usable plus pro rata share of common areas). This means that you pay rent on the space that you occupy PLUS you pay a % of rent on common areas such as hallways, bathrooms, lobbies, etc.
If you are leasing a free standing building or a flex office there may not be any common area area. This means that what you occupy is what you pay rent on.
5. Is the stated square footage usable square feet (usf) or rentable square feet (rsf)?
Be careful here. Some landlords will tell you the square footage is 2,000 sf, however you don't find out that the rentable square footage is 2,400 sf until after a lease is signed. Make sure you know what square footage you pay rent on.
6. How long of a lease term are you requiring?
This often depends on the existing condition of the space AND how much interest there is. If a space needs a ton of tenant improvements the landlord is mostly likely going to want a 3-5 year lease to be able to recoup their cost. Also if a lot of people are interested in the space then the landlord will negotiate for longer.
7. Can I get a copy of the floor plan?
Always ask for this to confirm the space will meet your design needs. Ideally you want a plan with measurements. If they don't have a commercial real estate floor plan then ask if they will have an architect for space planner draw one up. As a last resort you can always just measure the space yourself. Just be sure to account for the common area if applicable.
8. Are you open to paying for any improvements (e.g. new carpet, paint, demo or build walls, etc)?
If you are prepared to sign a 3-5 year lease you can typically negotiate to receive an allowance for improvements. If you are only able to do a 1-2 year lease don't expect much (if any). Keep in mind the landlord is looking at their over all costs. If you are leasing a new office for the first time the landlord may want you to have some skin in the game to mitigate their risks of paying for tenant improvements only for you to go out of business in 3 months.
9. Who are the other tenants in the building?
This is important to know to confirm there are no competing businesses in the building if that is something you are concerned about. Also complimentary business types can help you as well.
10. What is the parking ratio of the building and is there an extra charge for parking?
All office properties are going to have parking ratios to avoid having tenants over parking. In most cases tenants will get 3-4 parking spaces per 1,000 sf that they rent. Make sure you lease enough space to give you the parking spaces that you need or ensure that the building can accommodate your needs. Keep in mind companies always have employees who work remotely part time, travel a lot or maybe on vacation.
11. What signage opportunities are there in the building?
Where in the building are you able to put up signs (e.g. Suite door, directory, building, etc..) In most cases building signage is reserved for the largest tenants in the building. If your renting 3000 sf of office space don't expect to get signage. If your leasing 10,000 to 20,000 sf or more in a large building then it can be discussed.
12. What telephone and internet providers service the building?
You may already be using one provider and want to stick with them……or you may need fiber and can only rent office space in a building that is fiber-lit. Most landlord representatives won't know for sure. Be sure to confirm with the internet service providers on what service levels they have to offer.
13. Is the building for sale or are you planning on selling or refinancing the property in the near future?
Knowing a building is for sale can determine how you negotiate. If the landlord is selling a building they may not want to reduce the rental rate however may be more inclined to offer free rent, TI allowance.
14. How much money is required at lease signing?
In most cases you will need to pay a security deposit equal to one months rent AND the first months rent. So be prepared to write a check for at least 2 months rent at lease signing. If you don't have strong financials be prepared to pay more than that.
You also want to factor in the other costs you will have after a lease is signed such as new furniture, internet / phone, general liability and property insurance, etc.
15. Do I have control of the thermostat in the space?
You want the ability to change the temperature in your space correct? Office spaces get finished out after every tenant. Sometimes companies expand or contract. Afterwards you sometimes end up with the HVAC ducts and thermostats in all the wrong places. Make sure to get in writing that you will have the ability to control the thermostat in your space.
16. Who is responsible for repairs or maintenance in my space?
In most office buildings the landlord is responsible for repairs and maintenance, However if you are in a free standing building or smaller building you may find that the tenant is required to pay for repairs and maintenance. Again you need to get this in writing to avoid any surprises.
Many tenants only compare properties based on rental rate and fail to compare each one apples to apples based on the TOTAL cost of leasing. If one building requires that you pay for HVAC maintenance and the other does not make sure you create a spreadsheet to compare each.
17. How much is after hours HVAC?
Landlords pay for HVAC costs during business hours (e.g. 7am-7pm M-F and 7am-1pm Sat) however before and after those hours tenants are required to pay. You will typically see those hourly costs ranging from $20 to $40 per hour. HVAC units operate in zones in multi-tenant buildings. For example say the first floor is air conditioned by one HVAC unit. You might have 5 tenants occupying that floor. If one tenant turns on the AC it turns it on for all 5 tenants.
Again it's important that you take leasing commercial space seriously because small mistakes and oversights could end up costing you a lot of money. A commercial lease is not the same as an apartment. It's much more complex. Below are a few things to keep in mind.
- Be conservative and don't lease more space than you need. Check out our office space calculator here. If you don't have a clear plan for growth then stick to short term leases and subleases.
- Make sure you know what all the upfront costs are before signing a lease (security deposit, first months rent, furniture, internet / phone, general liability and property insurance, out of pocket tenant improvements, etc.).
- Know what you are required to pay for and what you are responsible for. Too many tenants overlook this.
Above are just a few questions you must ask and get the answers to before signing an office space lease. Many tenants don't take the time to get all the answers however if you do you will be better equipped to negotiate the best deal on your next office space transaction.
If you are renting office space in Austin Texas and would feel more comfortable having an expert help you negotiate with landlords give us a call.