How Long of an Office Lease Should I Sign?

In the search for new office space, clients often wonder, "How long of a lease should I sign?"

While the typical length of a lease term can vary based on the market location and its conditions, current vacancies, and upcoming developments, there are both benefits and disadvantages to signing a short-term (three years or less) or long-term (seven to ten years or more) lease.

You should note that the more competitive the market you are in, the longer leases you should anticipate landlords requiring. Here, we examine the benefits of different lease lengths to help you decide what's best for your company's next office space.

Benefits of a Short-Term Lease

Typically, a short-term lease makes more sense for smaller companies that are still in the process of growing and want to prioritize flexibility over stability.

If your business requires flexibility to expand or downsize, it may make the most sense to sign a short-term lease, as a longer lease may hinder your company's ability to grow.

A short-term lease will be advantageous if the office space no longer works for your company in the near future. If you're not legally obligated to the space with a long-term lease, you can avoid the potential expenses of subleasing your space or terminating your lease early in the event of a move.

Benefits of a Long-Term Lease

A long-term lease can provide established companies with both financial and logistical stability, plus more negotiating power during lease discussions with the landlord down the line.

If you anticipate rental rates in your market to climb, it can be to your advantage to sign a longer lease and lock in today's lower rental rates, rather than renew at a future, potentially higher rate.

This is particularly true for stable companies that have clearly defined growth projections and prefer to lock-in a favorable rental rate.

However, this can also be true for growing companies; by negotiating expansion rights in your lease, you can sign a long-term lease that will allow for expansion that will match your company's growth over the life of the lease.

Long-term leases can also help you avoid relocation costs, which can include new office build-out costs, technology and other infrastructure expenses, lost productivity due to downtime during the move, and additional moving and furniture expenses.

Negotiate Larger Concessions

If your company does not need flexibility in its lease term, you can often use a longer lease as leverage to negotiate more concessions from the landlord.

When you sign a long-term lease, the landlord can spread out the deal costs over many years, so they can typically get more aggressive with concessions. These may include: a larger tenant improvement allowance, discounts on rent rates, building signage rights, better rental rates, more favorable non-economic terms like expansion rights, and more.

There are a number of ways to structure a lease to fit your business's needs. A qualified tenant representation broker can help you determine what type of lease will be best for your company's needs and find options on the market that will best fit these needs.

About the Author: Taylor McHargue
Taylor McHargue is an associate with AQUILA Commercial's tenant representation team, where he ensures the site selection process runs smoothly. In addition, Taylor spends time in the field touring spaces, meeting with clients, and engaging with prospects.