The blog post below offers some good advice on how to get the best deal on your office lease. The one thing he says that I don't totally agree with is that you get a better deal for a longer lease. While that's true if you are comparing a 1-year deal to a 5-year deal, I don't think the same can be said for a 3-year term versus a 7-year term. Most landlords in the Dallas, Texas area expect to see some rental increases throughout the lease term so the longer the term, the higher the rent may go. But you also may get more free rent for the longer term. So on an average effective rate basis you may see the same or even a slightly lower rental rate in some cases, but not always.
The past months and years of difficult economic times have taken their toll on the corporate real estate market. Many brokers are predicting a tough road ahead for landlords who purchased buildings with financial expectations that won't be met. Discounts can be found for companies of all sizes, in buildings of C, B and A classes (i.e. Good, Better, Best).
Knowing what to look for and how to go about it can save your company thousands to hundreds of thousands of dollars. Here a few simple guidelines to follow when reviewing your new office lease:
1.) Use a tenant representative broker.
Finding the perfect office space without a professional commercial real estate broker is like performing brain surgery on yourself. Today there are more firms than ever before that specialize in tenant rep services and their fiduciary responsibility is focused on helping tenants ONLY, ensuring that you get the best possible deal.
2.) Be patient, this takes time.
Start looking at least one year, if not sooner, before your lease's expiration date. The more time you have to plan and analyze your position in the market, the better your negotiation stance will be.
3.) The longer the lease, the better the price.
If you're in the market now, or soon to be, you're in the driver's seat and you should be able to get a rock-bottom rate! Landlords are desperate and their looking for people to sign a 5-year, 7-year or even a 10-year lease, and the longer the term the better the rate!
4.) Don't take the first offer, and don't hesitate to ask for incentives.
If you don't get an offer that's in line with recent price declines in your area, hold out until you get one. Additionally, some landlords may be offering incentives like one free month with each year of the term, or offering free tenant improvements. A professional commercial real estate broker will know the market and the history of past closed deals.
5.) Don't be afraid to aim high.
As larger companies are vacating space, offices that would have been out of your budget just a few months ago may now be available at a fraction of the cost.
6.) Know what you need.
Performing the proper programming and space planning will result in knowing exactly how much space your office requires. Having a concrete direction for your needs will prevent you from paying for space you don't need, after all excess space equals less profits!
7.) Size matters.
Although businesses seeking small office spaces will still be able to get a good deal, the bargains are not as great as they are for large spaces. If you're seeking office space over 5,000 square feet, you'll have more options and a better ability to bargain with a landlord.
8.) Consider a sublet.
Sublets usually come with multiple tenant improvements that could potentially include phones, furniture, fixtures and above standard finishes that have been paid for by the current leaseholder. The current leaseholder is usually aggressively seeking a subtenant to offset their exposure in the lease, however, the risk is when the sublease expires and at that point the buildings current marketed rate should be taken into consideration.
9.) Keep your options open.
Whereas you would have had one or two good options a few years ago, today you could have five or six, if not more. Landlords have seen the writing on the wall, and now they need to be much more flexible and aggressive when they see a good tenant. Also, don't fall in love with one particular space, try to envision the offices you look at as they would be after you made tenant improvements, not as they are now.
10.) Know what to expect.
In other words, be realistic. Some buildings may not have vacancies, and may not be willing to make a deal, some landlords will be willing to make a deal, and others won't.
This is just the tip of the iceberg in negotiating the very best lease for your office. All I do is help tenants and that's what my business is all about. So if you're interested in learning more about how Newmark Knight Frank can help your business take advantage of today's low market rates then contact me today for an introductory meeting.
I hope to hear from you!
Jason Tucker | Associate Director