For most company executives, leasing office space is an infrequent transaction undertaken every 5, 7 or 10 years. Meanwhile, landlords and their brokers are transacting every day, making them highly attuned to the nuances of a commercial real estate lease. Thus, along with hiring a trusted tenant advisor, you’ll need to be aware of these 5 mistakes that many companies — even Fortune 500s — make when leasing office space.
LEASING MORE SPACE THAN YOU NEED. No company ever went bankrupt because they didn’t have enough space… the same cannot be said about the reverse. Err on the side of caution when it comes to sizing your new space. Subleasing (and becoming a landlord) is a terrible and expensive option to fall back on.
NOT NEGOTIATING (OR PAYING FOR) OPTIONALITY. Make sure your lease has termination and contraction options that suit your business needs. A termination or contraction option is always worth a small increase in your rent.
AGREEING TO “MARKET RENEWAL” TERMS. Make sure you have “fixed” (as opposed to “market”) renewal terms, and coterminous leases. Don’t put yourself at the mercy of a rising market. Remember, you can always negotiate if the market rate goes down! You’ll strengthen your hand even further if you have coterminous leases that you can consolidate and take to the market for a better deal.
FORGETTING THAT NOTHING IS FREE IN LEASING. Like commissions, treat tenant improvement dollars like they are your own money. So get value for it! Challenge your team to bring your budget in below your landlord’s TI allowance and take that money in free rent or moving expense.
WAITING ‘TIL IT’S TOO LATE. Whether you’re looking to sign your company’s first lease or you want to renew, you need to start looking for space early. Unless your lease is less than 2,000 square feet, nine months is the least amount of time you’ll need, and 12 months is more realistic. For renewals, you need to allow enough time for your broker to create a credible auction, which means you have to have enough time to theoretically lease space in a new building.