How To Lease Office Space in 8 Steps
Whether leasing office space for the first time or moving to a new location, the process of assessing space needs, creating a budget, touring space, negotiating a lease and moving can be daunting. One of the elements that makes leasing space so challenging is that there is no universal lease, no standard building, nor typical landlord. The good news is that even though the particulars of the leasing journey will differ for each tenant, the general path each must follow is very similar.
Below, LoopNet summarizes eight major steps in the leasing process and provides links to articles that expand on each one. Those steps include:
- Become familiar with the leasing journey.
- Determine if you should hire a broker.
- Assess your space needs.
- Develop a budget.
- Select a location and a building.
- Negotiate with landlords.
- Build out space.
- Pack up and move (if applicable).
1. Become Familiar with the Leasing Journey
By understanding the steps in the process and how much time each can take, you can set realistic expectations about the amount of lead time required for you to procure an office location. Small blocks of 2,500 square feet may take a few months to button down, but large blocks of 25,000 square feet or more may require years to secure and build out to your company’s specifications.
Key Steps and Timeline for Leasing Office Space
2. Determine if You Should Hire a Tenant Rep Broker
There is no requirement that you engage a tenant rep broker, but contracting someone to represent your interests is never a bad idea. Two key things to keep in mind are: 1) a landlord broker is contractually bound to negotiate on behalf of the landlord, so if you work directly with them, be realistic about whose interests they are prioritizing; and 2) commissions to both the tenant rep and landlord rep are typically paid by landlords so, technically, you are not “hiring” a broker because you’re not responsible for their compensation.
Should I Hire a Tenant Rep Broker?
3. Assess Your Space Needs
Figuring out how much space to lease and how the office will be laid out is an important early step in the process. To get started, conducting a back-of-the-napkin calculation can help you generate a reasonable estimate. To accomplish this, multiply the number of employees you need to accommodate by the average number of square feet per office worker in the U.S. According to CoStar, this figure currently sits at 180 square feet.
So, if you have 40 employees that will each need their own desk or office, plus a few conference rooms and a kitchen pantry, you will likely need 7,200 square feet. This figure will rise or fall depending on a host of factors, such as the size of the conference rooms and kitchen your firm requires; if you will need more offices than cubicles; if you will create a reception area; the column spacing and window line of the buildings you are considering, etc. With these particulars in mind, you might search for blocks of space in the range of 6,000 to 9,000 square feet.
How to Determine Your Office Space Requirements
4. Develop a Budget
Understanding how much you can afford to pay in rent is critical. Here again, a back-of-the-napkin calculation can help generate a decent approximation. Continuing with the example above, if you lease 6,000 square feet and pay $30 per square foot per year in rent, your annual rent will total $180,000.
Concerning the $30-per-square-foot figure, you will need to be clear about whether it is being offered on a full-service or a triple-net basis. The former means that all taxes, utilities and management fees are included in the rent and the latter indicates that you will pay for those expenses in addition to the $30 rent figure. Depending on the building and the market, those operating expenses can vary widely, anywhere from about 2.5% to 25% of the base rent.
Office Rent 101: The Critical Difference Between NNN and Gross Leases
In addition, there are a series of up-front costs like legal fees, the first month’s rent, construction expenses and moving fees for which a renter must allocate funds.
Budget for Key Upfront Costs When Leasing Office Space
5. Select a Location and a Building
This facet of the process is at the core of the search for office space and features several critical considerations. They include understanding the needs of the key stakeholders in your organization; determining if there is a client base you need to be close to; and ascertaining whether employee commuting patterns are a priority for your company. Additionally, the tax structure and labor costs in certain areas may weigh heavily on your location decision.
Once you focus on specific buildings there are other factors to consider. Do the floorplates enable you to accommodate the build-out you need for your firm? This represents just one of many potential criteria you will need to attend to when assessing locations, submarkets, neighborhoods and buildings.
Office Buildings For Lease
6. Negotiate with Landlords
To obtain the best overall leasing package, you or your broker will need to negotiate with various landlords. Landlords expect that you are considering multiple properties, and once you’ve developed a short list of potential locations, you can engage with their respective landlords through a request for proposal (RFP). By remaining open to a few viable options, you can leverage one offer against the other and procure the most favorable lease terms possible for your company.
Rents, concessions such as tenant improvement allowances and several months of free rent, reduced expenses, renewal and expansion options and the right to sublet your space are all conditions that should provide maximum value and flexibility for your company.
Flexibility Beats Hardball in Legal Lease Negotiations
7. Build Out Space
Office space comes in many conditions, from “shell” space with exposed columns, wires and pipes and unfinished walls and ceilings, to “turn-key” spaces that are ready for occupancy. In between there are spaces that are partially demolished or built out and require varying degrees of construction. Whether the spaces you are considering need a little or a lot of construction, it is important to understand how much it will cost to build out the space.
Most landlords offer “tenant improvement” packages, which are funds that cover most or even all of the costs of building out your space. However, when comparing offers from landlords, it’s important to bear in mind that a $100 per-square-foot tenant improvement allowance may not go as far in one building as another, so generate construction cost estimates for various offers before you sign a lease.
The Tenant Improvement Allowance: What Is It?
How Much Does It Cost to Build Out Office Space?
Mastering the Office Build-Out Process
8. Pack Up and Move
Notifying employees, determining what furniture to keep, purging old files and ensuring that the lights are on at the new office location are all components of an office move. This is the last step in the process after months of searching, touring, calculating costs, negotiating and constructing. While the steps involved in moving may seem intuitive, it is important to plan for the move and set expectations, especially among employees. Being prepared for each phase of the process — from vetting and hiring movers to ensuring computers are up and running — will ensure you are open for business in your new location.
Tips for Managing Your Office Relocation
This article was updated on 6/5/2024
