You’re not taking full advantage of your commercial real estate contract proposal if you focus only on getting a below-market lease rate.
When it comes to leasing office space, tenants and less-skilled brokers too often gauge the success of a transaction primarily by the difference between the current market rent and the negotiated lease rate.
But by focusing solely on rent, a corporate tenant could actually lose much more than the negotiated savings. Ultimately, the tenant loses considerable money on total occupancy costs.
You can find at least 100 negotiable aspects in a typical lease document that can lead to significant savings. These range from smaller items like monthly parking fees and rooftop-access rights to substantial matters such as sublease rights and termination options.
To maximize savings, tenants must negotiate all facets related to their company’s circumstances. The following factors are crucial to the success of any transaction.
Accuracy of Space Needs Assessment
Did you accurately account for your space needs? For instance, are you sure you need 30,000 square feet over a five-year term lease? Could you instead restack your space to more efficiently use only 28,000 or 25,000 feet?
What about the potential for expansion or contraction over the lease term?
Do you know what condition the building is in and if you’re responsible for upgrades?
If the owner is not held responsible for base-building deficiencies, what’s your cost to upgrade mechanical, electrical or fire/life safety systems?
A seemingly fair comparison of two buildings with the same quoted rent is not truly comparable if one requires additional expense for base-building upgrades.
How much of a tenant improvement allowance will you need to build out the space to fit your needs? Did you include all costs related to non-construction activities? Knowing this is essential to accurately negotiate tenant improvement dollars.
Is the tenant improvement allowance based on usable or rentable square feet? If based on rentable square feet, you will have about 12-18% more funds at your disposal. If you are using project management services, you can negotiate the building owner’s project administration fees.
Realistic Occupancy Date
When can you take occupancy? This estimate must account for all factors, including scheduling of
- furniture delivery
- technology installation
- other relevant vendors’ work.