Steps to take while looking for office space to rent include:
Identify your office space needs
Defining the needs of your business is the first step you should take before looking for office space to rent. Figure out how much space you need as well as your budget. You should also consider the needs you may have in the future too. Not having the right parking or layout now or down the road can really be costly and aggravating.
Here are some tips to help you evaluate your office needs:
Determine how much space you need
There are many factors to consider when you determining your spatial needs. You need to determine what kind of workspace your employees need. Consider other factors like your need for conference rooms and other factors. Typically, each employee will need at least 150 total square feet and management-level employees will require even more space. Think about the dedicated work and office space needs for each employee.
Consider your needs for a waiting area, kitchen, bathrooms and client-oriented space as well. You should also consider your needs for a copy room, break room, mailroom, and other areas you may need for your business.
Typically, it makes sense to estimate the required square feet per employee (to fit your particular business), and multiply that number by the total number of employees and add 25-33 percent for common areas, etc. You should also account for future growth by adding an additional 10-20 percent office space depending on your business type.
Determine the needs of your employees and clients
It is vital to make sure you know how much space your employees need to perform their jobs. It’s also important to consider your employees’ other needs as well as the needs of your clients. Determine whether or not your business requires a specific layout as well as the access needs of your employees and clients. Don’t forget special needs like handicap parking or access ramps.
Your office space layout should reflect the type of workspaces your employees need. You should consider the amount of meeting space and client service areas you will need. When figuring out your parking availability needs consider your number of employees and visitors you expect on a regular basis. You will need parking space for each employee as well as each client that visits your business.
For example, a marketing company may need an open, more collaborative work environment, whereas a dental office would need more private rooms or workspaces.
Determine the ideal location
Any office space you rent should also be in a location that is convenient for employees, clients, and vendors. You should also consider the accessibility to major roads and public transportation. Make sure the office space for rent that you’re considering is close to your employees and clients that your business relies on.
For example, a dental office would need to be located in an urban area with plenty of people. A major marketing company may want to be located downtown. Your office should be in an area close to your clients. Don’t neglect to consider the proximity to major highways or public transportation before deciding on which office space to rent.
Determine the best office building class to fit your business
The quality of a building’s structure and the amenities generally determine the class of office building. There are three main classes of office buildings—Class A, Class B, and Class C. Each class varies in age, amenities, and quality of tenants. It’s important to determine which class of space is ideal for your business prior to signing a commercial lease.
The three classes of office buildings are:
- Class A – Class A office buildings are the highest-quality spaces on the market. These spaces are generally the newest and most well-managed buildings. They also typically have the highest-profile tenants. These buildings are often best for legal, consulting, marketing, design, and financial firms that need impressive offices.
- Class B – These buildings can be older Class A buildings that still have the potential to be Class A-quality space. They can also be purpose-made buildings that were built to provide functional office space for a cheaper price than Class A buildings. This type of office space is perfect for businesses that want a nice office, but don’t need the most impressive offices.
- Class C – These office buildings are generally the least desirable due to age, location or renovation and maintenance needs. These buildings can be perfect if you just need a cheap space to operate your business.
Time management is crucial
Timing is everything in commercial leasing just like most things. It’s important to consider how quickly you’ll need to move into your new space when choosing an office for rent. Maintaining continuity in your business is important whether you have a start or an established business. Therefore, it’s important to make sure to identify spaces that you can lease within your time constraints.
The term of your lease will also affect your options. Most commercial lease range from three to ten years, but there are also buildings that prefer minimum lease terms. A short lease can be great because it limits the time of your obligations. However, you can also typically lock in a lower price with longer-term leases. On the flip side, a long-term lease can limit growth or cause hardships if there are issues with your business down the road.
Estimate Your Budget
It is vital that you estimate your budget as closely as possible to fit your needs, services, and financial constraints. You can determine your ideal budget by multiplying the average cost per square foot in your local area by the amount of space your business needs. You will also need to add in the maintenance and utility costs as well. Review your financial history to determine a realistic budget that fits your needs.
Steps for estimating your rental budget include:
Determine Average Price per Square Foot
Location largely determines the price per square foot for leasing office space. For example, office space in Atlanta and Dallas is a lot less expensive than Chicago, New York City, or San Franciso. The class of building you are looking to rent will also factor into the equation.
Add Common Area Maintenance (CAM) fees
CAM fees are divided among the tenants to cover the costs of maintaining the common areas of your office building. Common areas typically include the lobby, elevator, hallways, and any garage or parking lot areas. CAM can also cover the maintenances of any landscaping or grass cutting services. CAM fees are generally based on the square footage and can range from as low as 10 percent to 35 percent of your total lease amount. There are many factors that come into play with CAM fees including the age and condition of the building, location, and insurance rates. Researching typical CAM fees in your market is also a good idea. Make sure to factor CAM fees into your overall budget.
Don’t forget utilities
Commercial office building leases do not generally include the cost of utilities. The average office building spends $1.34 per square foot on electricity and 18 cents per square foot on
natural gas per month. So, take the amount of space you need and the utility costs to calculate a budget that fits your needs.
Therefore, you have the costs of your rent, the CAM fees, and utility costs all factoring into your budget.
Identify office space for rent that fits all of your criteria
Once you identify your needs and estimate a budget consult with a tenant-broker. Tenant representatives get paid by the landlord, once you sign a lease, so that doesn’t affect your budget. A broker will typically offer you a free consultation to discuss your needs.
You are not required to use a tenant broker and you can also use online search tools like Loopnet. However, a commercial broker will typically be able to provide better knowledge of the local area while also assisting you with the lease negotiation process. A tenant-broker should be able to help you estimate a budget, identify properties, and work through the complete leasing process while acting in your best interest.
Why you should have tenant representation
There are commercial real estate brokers that function as listing agents that work for the landlords. There are also commercial restate brokers that represent tenant interests. The listing agents are legally required to act in the landlord’s best interest. Tenant-brokers don’t always owe the same duty to the tenant so it’s important to ask questions when hiring a tenant-broker. Make sure to ask questions about their experience, size of their practice, compensation structure, and knowledge of the market.
Hiring real estate brokers isn’t required. However, a commercial real estate broker can have invaluable expertise, information, and connections that the average business owner doesn’t. Websites like LoopNet provide helpful resources and information, but they also can’t replace the knowledge and skills of Commercial Real Estate (CRE) professionals. CRE brokers can also save you time and money by helping with the negotiation process as well as the rest of the process.
There are many ways that CRE brokers can help you including:
- The negotiation process – commercial lease negotiations are important due to the impact they will have on your business. Therefore, its best to have as much help as possible on your side. A tenant representation specialist can help avoid making common mistakes such as missing potential hidden costs in a commercial lease.
- Pocket listings – Properties that haven’t been listed or may become available soon are known as “pocket listings.” These pocket listings can help you get in a high-demand property before they’re officially on the market.
- Saving time – There are many time-consuming steps in finding the right office space to fit your business. Identifying, researching, and touring office spaces for rent can also cost your money as well as take up your time and energy.
- Local knowledge – A CRE broker that has been in the area may know a lot more than you realize about the properties, landlords, and other circumstances in the neighborhood. They may also have knowledge or experience working with the listing agent or landlord directly.
Do your own legwork
You should hire tenant representation, but you should also do your own legwork as well. Using online resources like Loopnet can help you become familiar with the local area and potential office spaces for rent that may fit your needs. Doing some research may also help you point your broker in the right direction and save time by eliminating properties that don’t fit your needs. You don’t want to waste time looking at buildings that don’t fit your needs.
Most business owners that have been through the process would suggest that use a broker to help find an office space for rent. You can also choose to go through the process on your own. However, that means you would have to go through many stages of the leasing process alone too.
A CRE broker can help you identify available office space for rent, schedule walk-throughs, inspect potential locations, choose the right lease types, and negotiate the lease.
Research available office space for rent
There are many steps to take if you want completely research available office space for rent. There may be a lot of office space for rent in your area so it pays to narrow your options down as quickly as possible. Collect information on office space that meets your criteria. Use available information on building class, rent price, security features, the local utility services, as well as the age and condition of building mechanicals. You will also want to know about the parking, amenities, local area, and other factors that affect your employees and clients.
If you decide to not work with tenant representation you will have to contact the listing agents to schedule walk-throughs. Working with tenant representation means they will gather background information on each property and work with the listing agents to schedule walk-throughs. Having tenant representation means they will also be there to ask questions and protect your interests on any walk-throughs or meetings with a landlord or listing agent.
Factors to consider when you are looking for office space to rent include:
It’s important to consider the surrounding area of any office space for rent that you’re considering. The neighborhood should fit your criteria as much as the building. Therefore, you should also drive around and scope the neighborhood out before you decide to lease a property.
It is very important to find an office space that is easily accessible to your employees, clients, and vendors. Make sure that any office space you rent is close to public transportation, highways, and food so your office space is convenient for them. Make sure that you also meet the requirements of the Americans with Disabilities Act by making sure your new office space is handicap accessible.
Age and condition of building mechanicals
The building mechanicals may include plumbing, elevators, escalators, HVAC system. Make sure to verify the age, condition, and maintenance history of these systems so you can help prevent being stuck with potential issues. You may not be responsible for repairing and maintaining building mechanicals, but you also don’t want to deal with things breaking down.
Some office buildings have amenities available for the tenants of the space. Bigger office buildings may have cafes, day-care, dry cleaning services, gyms, and other services for tenants. It’s also important to check out any additional costs associated with the amenities.
It’s important to consider the other tenants of the buildings because they can affect your business and employees. It’s also important to consider how steady the anchor tenants of the building are. If an anchor tenant goes out of business or moves shortly after you sign your lease that can affect your business in a big way.
It is important to make sure you have enough parking for your clients, employees, and vendors. Make sure that any office space for rent you are considering has enough parking availability. If parking is in issue for your people then it’s going to be an issue for your business.
If the office building does not have a dedicated parking lot, find out how many parking spaces you’ll be entitled to if you lease the office. Depending on the number of employees in your company and how often clients will visit the office, some buildings may not offer the parking spaces you need to succeed.
Security systems and features
It’s always important for workplace safety to have a secure office space. The need for security features can also increase depending on your business and location. Having adequate outdoor lighting, gates, guards, surveillance cameras, and other appropriate security features is important. The worst the part of town your office space is the better the security features need to be. Security needs also increase if you have employees or clients that will be using the office space at night. Businesses that keep cash on hand or have valuable tools, equipment or inventory really need good security.
Organize your business’ financials
You will need to prove that you are capable of paying the rent so your landlord feels comfortable to lease the space. This means you need to gather 2-3 years of profit and loss statements and recent credit reports. You may also need to provide references. It’s important to compile financial records before you begin to look for office space to rent.
Steps to organizing your business’ financials
Assess your credit
One of the first things a landlord will look at is your personal and potentially your business credit prior to leasing you any office space. Therefore, it’s a good idea to understand your creditworthiness.
Compile your financial documents
You will most likely need to need 2-3 years of financial documents so you can demonstrate your ability to meet the financial obligations of a lease. Compile your balance sheets, tax returns, profit and loss statements, and bank records before you begin your search for office space to rent. If you have a startup this may not be possible.
Building owners may require references from previous landlords. A reference letter helps a landlord learn more about your rental history and may factor heavily into their decision to lease your business office space.
Prepare to sign a personal guarantee
A personal guarantee lets the landlord know that you promise to comply with the terms of the lease no matter what happens with your business. Some landlords will require a personal guarantee before leasing office space. If your business becomes unable to pay the rent your personal guarantee lets the landlord know that you’re personally capable of covering the terms of the lease.
Select office space to rent & start negotiating the lease
There are different commercial lease types to choose from after you find an office space that meets your needs and budget. It’s important to watch out for terms regarding rent escalation and subletting your office space. There are many things to consider in a lease that you need to be aware of. If you hire a broker they will negotiate the terms and ensure you get the best deal possible. If you decide not to hire a broker in an effort to reduce costs by not paying a commission you need to make sure you are familiar with all the terms prior to signing a lease.
Things to Consider When Negotiating Your Lease
There are a lot of terms in commercial leases regarding base rent, lease term, rent escalation, tenant improvements, and more to be aware of. The biggest thing you need to understand is the maximum amount of rent and fees you’ll have to pay each year, the length of the lease commitment, your responsibilities as a tenant, and the things your landlord will be responsible for. You should have a firm understanding of the considerations prior to signing a lease.
Standard terms in a commercial lease:
This clause relieves a landlord from the duty to repair or improve the lease space. This section states that the tenant accepts the building in as-is condition, so the landlord doesn’t have to repair or improve the premises. Therefore, you should inspect the property or reject this language from being in the lease.
Base rent is the total amount you need to pay each month for usable space. The base rent is determined and presented as a cost per square foot per year. Now, there is usable space, which is the actual space used for your operations and rentable square feet which includes your share of the common space in the building. It’s important to consider the rentable square feet when negotiating your office lease before agreeing to a base rent price.
Length of the Lease Term
Commercial leases generally between three to ten years so make sure your lease doesn’t require you to stay longer than you want or need. You also want to make sure you have the office space as long as you need it.
Your commercial lease will have your base rent in it, but it will also describe any future rent escalations. Having this term in a lease means that a landlord can legally raise the rent during the lease, so make sure you read thoroughly. Now, rent escalations of three percent a year are fairly common, so make sure you’re not signing up for much more than that.
Tenant improvement credits
It’s common for a tenant to require renovation so they can successfully operate their business. Therefore, it’s common to ask for tenant improvement (TI) credits to cover any related costs. The TI credits give the tenant the ability to make the necessary improvements with the costs being covered by the landlord.
Watch out for these red flags when negotiating a commercial lease
There are several terms that you should avoid in a commercial lease. Some terms can give your landlord the ability to terminate your lease without cause at any time. There are also terms that pass along maintenance costs or more. Make sure you are aware of these red flags when you are negotiating a commercial lease for your business.
A use clause determines the type of business that you can operate within commercial space. For example, a commercial lease may limit the use of the space to an office or retail business. Therefore, you need to make sure there aren’t restrictions that limit your ability to operate your business. A use clause can also prevent you from subleasing to another business should you need to. So negotiate the broadest use clause possible.
Termination without cause
The termination without cause provision can be extremely detrimental to your business to say the lease. Sometimes landlords want to reserve the right to terminate a lease without cause to maintain their flexibility. You should reject signing a commercial lease with this clause.
A commercial lease must be assignable if you want to sublease or transfer the lease to a different tenant. Therefore, if you think that you may leave the space or sell the business when you sign the lease it’s a good idea to also make sure the lease allows for assignment or subletting.
Increased property taxes
The landlord of a commercial building typically pays the property taxes. However, you may be responsible for any increase in property taxes. Therefore, you may want to address any language stating that you’ll be responsible for any increase in property taxes.
Avoid these common pitfalls in renting office space
There is a lot of variables and challenges when it comes to finding an office space for rent. Many business owners make common mistakes when they sign their commercial lease. It is common for tenants to find their office space is too expensive, too small, or a bad fit for their business. Therefore, you need to be aware of these potential pitfalls when renting office space for your business:
Choosing a bad location
Everyone knows that real estate is all about location, location, and location. Your location can make or break your business, so make sure you pick the best location possible. It’s important that you consider the surrounding neighborhoods, accessibility, and transportation options before you sign a lease. If you have existing customers or employees then you also need to consider their needs. It’s wise to spend plenty of time researching surrounding businesses, restaurants, local service providers, and more before selecting an office for rent.
Getting the size wrong
It’s very important to consider the current as well as the long-term needs of your business when choosing an office space. It isn’t possible to know exactly where your business is going to be in a year or more. However, you should consider your goals and plans for the future when signing your lease. You don’t want to be stuck with an office space that is too small or too big for your business.
Missing or ignoring the red flags in your lease
This is a big reason why it’s important to have tenant representation to help negotiate your lease. A lease is a legally binding contract between the landlord and the business (or person) signing to lease office space. Most lease terms are initially very landlord-friendly so it’s important to review every detail before signing to lease office space. You need to watch out for use clauses, limitations, and other terms that may put you in a bind. You can don’t want to cost your business money or limit your flexibility due to missing language you could have negotiated ahead of time.
Many business owners have made the mistake of overextending themselves because they signed a lease that costs too much. There have also been plenty of business owners that spent more money on an office space than they needed to. Overspending on a commercial lease can be detrimental to the success of your business. Don’t overspend on amenities or office space that you don’t really need to run your business.
The bottom line in finding office space for rent
There are many things to understand prior looking at office space for rent. You should understand the needs of your business, employees, customer base, and vendors. You should also know your budget and consider your plans for future growth. It helps to have the help of a professional when looking for an office space to rent. A commercial broker can help you every step of the way and has plenty of reasons to make sure you get the best deal and office space for your business possible.
You also need to consider local service providers and neighborhoods. Don’t forget that most commercial restate agents are happy to provide a free consultation to discuss your needs.
Contact us about your Commercial Real Estate needs In Dallas- Fort Worth
We encourage you to contact us should you want more to learn more about how tenant representation helps or CRE services. Feel free to reach out to discuss your needs or how we can help at any time. Our team can help you lease commercial real estate anywhere.
We are always glad to discuss corporate real estate with business owners considering their options. There is also no charge or obligation when it comes to having a discussion. Call us or shoot us an email today so we discuss your needs.
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