A Road Map to Finding, Paying for, and Moving Into Office Space
Embarking on a search for office space can be a daunting task even for individuals that have extensive experience executing leases, constructing interior office space and moving colleagues into new quarters. Having a general understanding of the steps involved in the process, as well as knowing how long each phase may take, is a sound way to begin. Starting too late could force you into space that does not function for your business or terms that are not beneficial for your firm.
The search for space can vary greatly based on the size of the premises you need, the degree of construction involved and myriad other factors. Here, LoopNet provides a general overview of the process, but keep in mind that each space search is different. Jurisdictions have different regulations, buildings vary in size and systems, landlords have different expectations and numerous other characteristics will impact your leasing journey. With that said, the steps below form the backbone of the process that can be applied to requirements of all sizes, from 500 square feet to 50,000 square feet or more.
Don’t Delay: Allow Six to 24 Months to Find Space and Execute a Lease
Depending on the number of employees you need to accommodate, the process, with some exceptions, generally takes between six and 24 months. A firm with 10 employees seeking a 2,500-square-foot office suite may find space that is move-in ready, execute a lease and occupy the space in three to six months. However, a large tenant looking for a 25,000-square-foot block of space that needs renovation before it can be occupied might require 24 months. Particularly significant requirements of 50,000 square feet or more could take even longer.
There are four critical activities to carry out during the early stage of the search. For the most part, these tasks involve time, focus and organization rather than an outlay of cash. They can be completed concurrently and will take between one to six months to complete.
Be clear about why or if your firm needs office space. A firm’s stage of life is often a good guide for determining why, or even if, a company needs office space. A nascent business looking to move out of the founder’s house might consider a coworking or executive suite arrangement. An established business may be growing, so a larger office suite or an additional office in a different location might make sense.
Consider engaging a commercial real estate broker. Working with a commercial real estate broker that specializes in tenant representation is not required. However, a tenant representative is legally bound to safeguard the interests of the tenant. If you represent yourself, you could be at a tremendous disadvantage when working with the listing agent that represents the building landlord and has extensive experience negotiating real estate leases.
Ascertain space requirements and objectives. How many employees do you need to accommodate? Do you believe your company will grow or shrink in the coming years? What type of office layout do you anticipate? How many conference rooms do you need? Will you build custom space exclusively for your firm, occupy a prebuilt office suite or do you simply need some desks and an office at a coworking facility? These are just a few of the questions to be addressed as you assess your needs.
Develop a real estate budget. Review your financial statements carefully and be clear about what you can afford to pay in rent. Also be aware that leases are structured in a variety of ways, so you may need to pay monthly expenses on top of rent, such as utilities, real estate taxes, property insurance, etc. Additional one-time costs stemming from items such as execution of the lease, moving furniture, installing internet cabling, and constructing office space should also be budgeted.
Now that you have a general idea of the kind of office suite you need and the rent you can afford to pay, you can focus on identifying locations and buildings that meet your needs but don’t break the bank. You can search for buildings based on available space for the period you are targeting and the “asking rent,” or rental amount, being sought by the building owner/landlord. There can be some overlap between the segments described below, but for the most part each needs to be carried out in succession.
Identify locations and buildings that make sense for your clients, employees, and budget (one to six months). Understanding the needs of the key people involved with your business is very important. So, determining if there is a client base you need to be close to or if employee and top management commuting patterns are a priority is a good place to start. Additionally, the tax structure and labor costs in certain areas may weigh heavily on your location decision. Do you want to be located close to public transit or major highways? When you focus on specific buildings, do the floorplates enable you to accommodate the build-out you need for your firm? These are just some of the considerations you will need to attend to when assessing locations, submarkets, neighborhoods, and buildings.
Request proposals from landlords for buildings that meet your criteria (one to six months). Once you have found two to three spaces that work, request proposals from landlords in writing, expressing the general terms of the lease. These should include rent, escalations, expenses for which you will be responsible, concessions such as free rent, the length of the lease, security deposit information, etc. The attributes in the proposals may not make it to the final lease but they will serve as anchors in writing around which you and the landlord will negotiate. The proposals should include conditions and figures that reflect conversations previously held with the landlord. If they do not, this may be a sign that you and the landlord are not on the same page.
Test Fit, Negotiations and Letter of Intent (one to three months). For large space requirements, retain an architect/space planner and create “test fits,” which overlay your workstations, conference rooms, offices, etc. on the floorplate of the office suites you like the most to see which one best accommodates your specific layout. As you consider various options, negotiate terms with multiple landlords. Attentiveness and patience will be required as you juggle the negotiation of multiple offers simultaneously but investing time in this phase will enable you to obtain the best rates and terms for each opportunity. Once you settle on a space, generate a Letter of Intent signed by all parties.
Secure an attorney and execute the lease (one to six months). After settling on a space and securing landlord and tenant signatures on a letter of intent, much of the groundwork will have been laid for the office lease. This contract will be the document that will govern your rights and responsibilities as a tenant during your time in the building and it should reflect all the terms you have worked to establish with this landlord during your search. While there is no requirement to engage an attorney, it is recommended that an experienced lawyer be retained to review the document and ensure that all clauses and terms are legally appropriate and protect your interests.
The Final Stretch
Depending on the condition of the space you settled on, you may be able to move in right away or you may need to embark on a significant construction project.
Build out your space (three to twelve months). This is the wild card in the leasing process because it is the activity that typically varies the most based on the scope of the build-out. If you are occupying space in move-in condition or simply painting and reflooring a suite, this can take from several days to three months. Partial buildouts involving demolition and reconstruction or building out unfinished space in “shell” condition could take months to more than a year, depending on the size and complexity of the project. Space in shell condition generally means there are no interior walls, ceilings and columns are fully exposed and main plumbing and electrical connections are provided. For projects requiring extensive construction, you will likely need to work with architects, engineers, general contractors and potentially other design and construction-related professionals. Some portion, if not the majority, of the construction expense is often covered by the landlord in the form of a tenant improvement allowance.
Move in (five to fifteen days). Once construction is complete and all inspections have been passed, an occupancy permit will be required for furniture and final technology to be installed. A moving company can deliver files, copiers, and personal effects for individual employees before staff arrives at the building and begins the transition into the new office space.