Many companies seem to be doing very well and growing their business as well as their staff. At some point each owner has to look at either moving to a new location or taking on additional space nearby to accommodate a larger team, but most of the time a new location is the best option. Once a company has made the decision to move and find the perfect space, the real business comes into play. Making sure the space is not only up to snuff but also the terms of the lease should be the most important details besides comfort, size or location. Below I will offer a few suggested items to keep an eye on when moving forward with that new shiny space you are getting ready to sign on to for years to come.
1. Lease length – Many leases start at 3 years and can go up to 20 years or further depending on the landlord and user agreement. The longer the term the better rate a tenant can typically get but its not always the best move from an owners standpoint. You need to ask yourself where you will be in 5, 10 or 20 years and the last thing you want to be doing is fighting your way out of a lease that is keeping your from growing. I think a short initial term and then a longer renewal is a great way to approach a new office lease.
2. Rates, Renewals and Increases – Many business owners do not want to spend cash up front to get a space built out for their needs but they may end up over paying handsomely if they do not watch these three factors. What is the base rent as-is or if you did your own work? When you renew are you paying a premium for not new space or are more improvements a part of that? Annual rate increases are normal but over 10 years are you out pacing market rate? Landlords deserve to make good money but as a business owner will you be able to find a better rate elsewhere? By analyzing and thinking these terms over you could save your company a large portion of profits and not regret a long term poorly planned commitment.
3. The Landlord – Tenants do not ask this enough in my opinion and it makes very little since to me especially under such a large burden to a tenant to keep an agreement. I think a potential tenant should make very clear who the owner of a property they are leasing is and what their long term goals might be. Are they long term investors that value a long term tenant or are they buy and flips types that want to fill a building and pass it on to a new buyer? Is the property self managed or is it looked after by a 3rd party management company? Who will you be dealing with directly and what type of attention can we expect as issues arise. This is a long marriage and not being very clear on expectations and needs can cause a lot of frustration down the road. Most landlords I have dealt with are glad to have these conversations early on.
4. Capital Improvements – We all can identify the ugly retail center or office building in our community. The owner is probably very hesitant and reluctant to put money into the site and any request will probably go un satisfied. Asking the property owner a schedule of facade improvements or exterior maintenance is a good way to find out how ugly your building will be in 5 years and how you may want to structure your lease.
Finding a new location is hard enough but coming to good terms for both sides requires time and research. Use your broker and advisors to gather the best information possible ahead of time and this will shorten the commitment time as well as hopefully avoid a tenant/landlord problem in years to come. If you would like to discuss a new location please feel free to contact me at 317.698.2700 or firstname.lastname@example.org