The RENT blog gives you the resources and tools you need to make the best decisions regarding your real estate needs. We cover a broad range of subjects regarding office space, tenant needs and what to look for when investing in property.
If you rent office space, then real estate related costs are probably your second or third largest expense. Lowering office space costs will significantly impact a firm’s profitability. The next time you rent office space, use the seven cost saving tips below – they will help with whether you are considering a new location or a lease renewal.
1. If you’re going to rent office space, start the search process early
The tenant benefits greatly by having enough time to evaluate his options, create a competitive bidding environment, and structure a satisfactory transaction. Unfortunately, tenants too often wait too long before they start the process, even when counseled otherwise. The smallest tenants should start their space search at least 6 months before their lease expires. Most tenants should start 12 to 18 months prior to the expiration. The largest users should evaluate their options 2 to 3 years before the expiration of their current lease.
Before tenants evaluate buildings for relocation or renewal, they should complete a space plan with an architect or space planner to identify the optimal space size and configuration. Space requirements are not static, and the space leased several years ago may no longer be the optimal size or configuration. A space planner can identify opportunities for savings with a more efficient floor plan.
Tenants often fail to create aggressive competition from various buildings in the marketplace, especially in renewals. Landlords know that tenants renew 70% of the time, so landlords are reluctant to give renewing tenants market terms. When negotiating the lease renewal, tenants must convince their landlord that they can and will relocate, even if renewal is the primary objective. Landlords recognize that tenants with proper representation will be thoroughly evaluating the marketplace.
Ignoring construction costs before signing a lease is where many tenants leave money on the table. All things being equal, tenants should favor sites, spaces and floor plans with lower build-out costs. When the build-out cost is substantial, tenants should insist on managing the construction, and should solicit competitive bids to manage the costs.
A poorly negotiated operating expense and “pass-through” provisions in the lease can cost the tenant serious money over the term of the lease. Specific definitions of building operating expenses including exclusions, audit rights and, if attainable, a cap on controllable operating expenses, should be negotiated.
What appears on the surface to the best economic option is not always the case after a detailed evaluation of the incentives and costs. Have a qualified professional perform a financial analysis before you rent office space so that have a clear picture of the alternatives.
The landlord’s agent has fiduciary responsibilities to the landlord. The landlord’s architect and contractor may not be the most competitive in the market. To get the best deal, a tenant must assemble his own real estate team. Tenants considering a relocation or renewal of their office space lease should retain a commercial real estate broker who specializes in tenant representation for office users in their market.
At Golden Group Real Estate, we specialize in tenant representation for office users in the Chicago area, helping local business owners find office space and negotiate lease and purchase agreements. We never represent landlords, so we are prepared to negotiate aggressively on behalf of our tenant clients.
For more on Golden Group Real Estate, read about our real estate services. Let us know if we can help you find office space for rent or buildings for sale. Call us at (630) 805-2463, email us at firstname.lastname@example.org, or enter your office space search criteria below.
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