Congratulations! For whatever reason, the time has come for you to find new office space. Maybe your company has outgrown your existing space. Or more of your employees are telecommuting so it is time to downsize. Or the location of your customer base has shifted and you need to move closer to serve them better. Regardless of the reason, there are several things to keep in mind when looking for new space.
1. IT WILL TAKE LONGER THAN YOU EXPECT.
It is rare that you will find the exact space you are looking for. Occasionally (and that may be overstating the frequency at which this happens), you will walk into the perfect space. The wall paint is exactly the right color, and there are no holes in the walls that need patching. The carpet is in great shape, and does not need to be replaced. The layout of the space fits your needs perfectly, and there is no need to build more private offices, or demolish existing offices to create more open workspace, or add another conference room. All you need to do is move in your desks, office equipment, and employees…and you’re ready to go! Unfortunately, this sort of plug-and-play scenario is rare.
At the very least, new paint and carpet is generally needed. More often than not, walls will need to be moved, removed or constructed. In some cases, the necessary changes are so dramatic that an architect or the owner’s in-house design team will be needed. They will discuss with you how you will use the space: how many private offices and conference rooms are needed, the amount of space to be devoted to open and collaborative work stations, how big the break room needs to be, whether you need a reception and lobby area, if you have unique storage or other requirements. Then, they will create a space plan called a “test fit”…essentially a drawing that tests how everything fits together in the space.
If walls are coming down or going up, a permit is needed. Depending on which city will be issuing the permit, permitting could easily add 4-8 weeks to your timeline. That is before construction begins. Construction timelines vary widely depending on the amount of work required before move-in.
Remember, too, that you’ll need cabling for telecommunications in the new space, and there is always lead time with the telecommunications companies. You may also need signage on the building and or a designation on building monument signs. If you need to install a security system, you will need to contract with a security company. These items also have lengthy lead times.
Just keep in mind that your space search will probably take longer than you think it will.
2. IT WILL COST YOU MORE THAN YOU EXPECT.
Office vacancy in the Treasure Valley is holding steady at just under 9%, representing a 15-year low. What’s more, construction costs are way up. Much like the rest of the United States, the cost of materials and labor has increased significantly in the Treasure Valley. Even so, despite the low vacancy and significant increases in construction costs, we have not seen a corresponding run-up in rents in the Boise market. That’s the good news for tenants.
The bad-ish news for tenants looking for space? In this market climate, building owners have the upper hand in negotiations. There may not be a lot of room to negotiate off of the asking rates. Also, rent concessions – or months of “free rent” at the beginning of the lease term – are nearly unheard of.
The high construction costs will also certainly impact the lease terms. If there is extensive build-out, the tenant improvements can either be paid by the tenant upfront, or the costs will be amortized over the life of the lease. Most tenants are not prepared to write a check to cover construction costs, which means the landlord will either need to cover the costs or the tenant must secure a line of credit to pay for the improvements. If the landlord pays for construction, the construction costs will be amortized over the initial term of the lease. In this event, it is common to extend the lease term to 5 to 7 years, and the base rent will increase accordingly.
Additionally, there are certain costs that the tenant typically covers in every office transaction. Telecommunications and Internet installation and services, signage (except for a designation on a building lobby directory), security systems, and appliances for the breakroom are paid for by the tenant. Moving costs and down-time involved in the move should be added to the budget. Depending on the location of the new office space, the tenant may also be responsible for parking costs.
It’s a good idea to know how much your budget can handle each month before looking for space. That way, your agent can narrow the space search to spaces you can reasonably afford. Also, don’t forget to budget for one-time costs involved in moving to new space.
3. YOU SHOULD WORK WITH A COMMERCIAL REAL ESTATE AGENT.
Nearly all of my time is spent working with tenants on space searches and site selection. Many of the tenants I represent are surprised to learn that my fees are paid by the property owner. That’s right: when you are tenant looking for space, you can work with an agent and someone else will pay your agent. No cost to you. Yet, you get the benefit of the agent’s knowledge and experience. Seems like a no-brainer; doesn’t it?
(Technically, the agent’s fee is already factored into the rent amount, but choosing to negotiate the deal on your own will not result in a reduction in rent.)
Commercial agents are professionals in the business of completing real estate transactions. That’s what they do all day, every day. Just like the accountant who does your taxes, and the mechanic who works on your car, and a doctor who treats what ails you…and you pay those service providers for their expertise and specialized services. Because you aren’t in the business of accounting or car repair or medicine. You have a business to run, so you outsource those tasks that you do not routinely handle because someone else can do it faster and cheaper while you focus on your business. It’s the same with real estate transactions and searching for space. The only difference here: you’re not the one writing the check at the end of the transaction.
If that’s the case, why wouldn’t you work with a professional for your space search? Commercial agents understand the market. They know rent structures and understand what concessions and lease terms to push for during negotiations. They understand the pricing differences in submarkets. They can help you find parking spaces for your employees. They can make introductions to architects and interior designers and lenders and attorneys and other professionals who may be needed to assist in the build-out and move.
Idaho is a non-disclosure state, so there is no central repository for you to look up lease rates or sale prices in different submarkets. But you can bet that your agent knows off the top of her head what Class A space is leasing for in the Downtown submarket. And if she doesn’t, you should find a new agent.
Practically, what does this all mean to you? If your existing lease is expiring in the next 6-12 months, start looking now. Pencil in budget numbers that are realistic for the market, and are likely higher than you think they will be. And work with an experienced commercial agent to help. It will certainly be worth the money (that you don’t have to pay) in the long run.
Author: Laurie Reynoldson CCIM, CLS | Tenant Representation + Site Selection Specialist | Commercial Real Estate Brokerage