Office Leasing Requires Mastery-Level Skill By Tenants To Safely Negotiate The System
Posted by admin on 08/3/08 in Best travel deals talk
Whether the climate for office leasing is oriented toward the landlord or the tenant, the “business protection” aspects of office leasing prevail as a priority. Whether it is the large corporate office of a conglomerate, a regional sales office or a small private company office, there are few other opportunities in a company’s life to evaluate itself in such an intimate fashion than when it evaluates the need and use of office space. Economically, the costs associated with office leasing can be staggering.
For example, a firm leasing 10,000 square feet may be dealing with $4,000,000 in rent over ten years, expense increases of $75,000 Construction cost of $500,000, moving costs of $25,000, parking costs of $200,000, design layout and construction drawings of $40,000, just to mention a few. Typically, a firm’s office leasing cost is the second largest administrative cost behind salaries, taxes and benefits. Rental cost alone, however, is only the first consideration in leasing, albeit the largest component.
There are several other categories that carry a great deal of liability to an office user if not reviewed and resolved prior to any lease. Tenants need to spend solid time determining the existing requirements by first taking careful inventory of persons, furniture, offices, and files. Forecasting is needed to highlight any areas that will be expanding or contracting and areas within the company that should or should not be adjacent. Although many buildings may seem friendly enough, each one must be reviewed carefully to determine the compatibility with the tenant’s needs and concerns.
It is necessary to prepare a detailed list of the building’s assets, liabilities, physical condition, construction, heating and air-conditioning, fire protection, floor plan size, and many other elements for you to compare each detail accurately.
Operating expense increases that are billed to the tenant during their lease show up with a big surprise if the cost was forgotten or unbudgeted. Complete details of how the owner intends to operate the building will verify any “hidden” costs down the road.
Remember also that the cash allowance that is made available for constructing or remodeling an office must be determined to be fair, accurate and appropriate to the requirement. Another loss of dollars if not pinned down. It is not at all uncommon for the board of directors of companies to have input on this topic considering its considerable financial impact; as a total cost as well as the contingent liability it represents over many years.
As a result of the great many aspects of leasing coupled with the great amount of time necessary to manage them, and the large financial commitment, there is an absolute need for process and detail management. Your ability to successfully manage the leasing process will hinge upon the team you select to handle the details, and the posture you take in leading your team and negotiations with landlords.
The commercial real estate business has witnessed a metamorphosis toward serving the tenant. While ordinarily agents have brokered office leases acting as either an owner’s agent or a dual agent, it has become more common for each office tenant to be represented by their own agent. Most States now have new tenant rep or buyer’s agency laws affording the tenant the legal representation which in the past was provided only for the landlord. During the glory days of the tenant’s market when two years free rent was in vogue, the agent was more of a glorified delivery person, simply poring over which pic-nic basket to take. However, as the market may turn more to the favor of the Landlord, tenants find out fast that every foot of ground in the negotiations is difficult.
Likewise, tenants are fast coming to the conclusion that it is not just the rental amount that needs managing, but the whole process. From the first thought about your impending lease expiration to the delivery of the last desk in the new office, the whole multi-faceted process requires a unified management team. No longer can a tenant simply depend on an agent to “find” office space, have Fred figure out what kind of needs there are, have your brother-in-law look at the lease and have Matilda call the moving companies.
It is the whole process which needs managing and which requires a paradigm shift on behalf of the tenant to recognize the need for a new management program to deal with the new problems. It is a “Tenant-Controlling” paradigm. Advocacy for the tenant is the beginning point for what is required by all business; to manage the office leasing element no differently than any other great liability. In a manner of speaking, the office space should be looked at as a partner in your Goals and Plans, a tool to help. Look at this from a long range planning point of view. Allow your facility to be an asset or partner to that plan, not just office space. And although office space is real estate per se, real estate only plays a role in the total picture - don’t think otherwise.
It will be many years before you have to undertake such a project again, and in some cases you may never, either by default or design. The message here is mastery and control over all elements, rendering you never to be subordinate or reactive to the elements, as so often is the case in office leasing and in real estate. Your employees will be affected by this, even your spouse will notice possible stress as you undertake an office relocation or renewal. These tips will enable you to avoid all stress relative to this undertaking. If you do become stressed out, read this website again or the relative section. State to your team members the same thing and give them a copy of this website to keep handy.
Also, don’t negotiate all things at once. Plan which items you should stage along the line. Office leases are substantial financial instruments, even if you are a smaller tenant. Don’t spill all your jellybeans in the lobby. If you know that you will be seeking a large concession from the landlord or asking for his acceptance of a particularly thorny element, then negotiate to agreement on some items and hold back others until the landlord has sufficiently invested the amount of time, energy and money to think you are nearly at the alter. Do this with your present landlord as well if you intend to renew, but don’t let him think you intend to remain. If you need some time or more leverage to keep the landlord on the hook, nothing gets a landlord quite so pregnant like asking him for a large photograph, rendering of the building or an aerial photo to share with employees and customers. Or, ask the landlord for a draft lease document for initial review. Whether you are sincere or not about your real intent, this type of request produces endorphins and serotonin in all landlords.
Turn the negotiations around. Instead of submitting an RFP (Request for Proposal) from the landlord, to whom you would then be reactive in the negotiation, submit an Offer to Lease proposal of your own in the form of a Summary of Salient Terms. A letter of intent, while not binding, certainly creates the stage that you intend to do something. But you may not. You may be just negotiating for better terms with one landlord, or at another building altogether, or even to re-lease where you are.Use the media if you need to. It hurts no one if the paper “discovers” you are considering the county location, when it is the terms with the city location you are actually seeking to improve.
Above all, enjoy this process, because it is multi-faceted and brings a large pool of personalities and talented people into the scene. And, let’s be honest. No one ever died from leasing office space. But everyone that does is participating in the great industrial, capitalist machine: to be better, healthier, wealthier and wiser tomorrow than today.
OfficeTenant.com is the first website to offer comprehensive mentoring and coaching to office tenants along with access to buyer’s and tenant’s agency laws in the US to empower tenants.
Christopher Desloge is a three-decade veteran tenant representative in office leasing, authoring The Tenant’s Guerilla Guide to Office Leasing. Mr. Desloge is Chairman of the Tenant Rep Agency, LLC specializing in office tenant representation throughout the US. The Tenant Rep Agency, LLC has teamed with HOK, the largest architectural firm in the world to provide office leasing tenant with tenant representation brokerage services coupled with space planning, tenant development, construction drawings and construction administration all at no cost to the tenant. Tenant Rep Agency website is http://www.tenantrepagency.com
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