In the case of leasing business spaces, tenants and their brokers too often gauge the success of a transaction primarily by the difference between the current market rent and the negotiated lease rate. However, by focusing solely on rent, a corporate tenant could actually stand to lose much more than the negotiated savings, ultimately losing considerable money on total occupancy costs.
Among the scores of pages that make up a typical lease document, there are at least 100 negotiable aspects that can lead to significant savings for tenants. These range from smaller items like monthly parking fees and rooftop-access rights to more 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. Is the assessment of your space needs accurate? For instance, are you sure that you need 30,000 square feet over the five-year term, or could your space be restacked more efficiently to utilize only 28,000 or even 25,000 feet? What about the potential for expansion or contraction over the lease term?
* Base-building conditions. Have you identified the deficiencies of base-building conditions when comparing alternatives? If the owner is not held responsible, what is the tenant’s 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.
* Tenant improvements. How much of a tenant improvement allowance will you need to build out the space to fit your needs, accounting for all non-construction related costs? Knowing this is essential to accurately negotiating tenant improvement dollars. Is the tenant improvement allowance being offered based on usable or rentable square feet? If based on rentable square feet, you will have approximately 12-18% more funds at your disposal. If you are using project management services, you can also 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 design, permitting, construction, furniture delivery, technology installation and all other relevant vendors’ work.
Hiring competent Tenant Representation is the first smart step in handling your business space leasing needs.
International Tenant Representative Alliance