Negotiating a deal for an office space, home or retail space is a delicate art that takes thoughtfulness, precision and a clear idea of what you want. Walking away from a deal is not only the best leverage to get everything on your list of asks, but can also be necessary if the deal is headed in a direction that’s not in your best interest. Here’s how you can determine when it’s time to walk away.
When You Lose Focus of Your Original Goal
When looking for a new office space, it’s not uncommon to get caught up in a particular space or location and get lost in the idea of it. For instance, perhaps you’re on the hunt for a new office space in an attempt to shorten the commute for your employees. In the process, you happen upon an office space you love at a reasonable price, but it’s nowhere near where most of your employee base is located. If the original goal was to alleviate the commute for your team, and you end up looking at a potential office space that isn’t in alignment with that, no matter how nice it is or how many amenities it may boast, it’s best to take a step back and reevaluate why you decided to search for a new space in the first place. This is also the type of thing that can happen when you are looking to save money by reducing your square footage, but then start looking at nicer and higher class properties than you were in before. If the per square foot price becomes higher than you were paying before, you may end up taking a smaller space without any real cost savings.
When the Risk Far Exceeds the Potential Gain
Searching for the perfect location can be exhausting, especially when you have a large list of necessities. After a few less than impressive viewings you might be tempted to start to lower your standards. If you find yourself in a position where there are a laundry list of maintenance issues or you’re not 100% comfortable with the lease term the landlord is insisting on, it’s better to err on the side of caution rather than taking a risk that may negatively impact you in the end.
When It’s No Longer a Win-Win Scenario
If a potential landlord is using your interest in the property as a bargaining chip in their favor, rethinking the deal and even walking away from it could be in your best interest. For example, if the person on the other side of the negotiation gets emotional, is making threats, or is lying to you, this should tell you that you do not want to get further involved with these people even if the property you found hits all of your wants and needs. Remember, this will potentially be your landlord for years to come. In this situation it’s also beneficial to work with an experienced broker to ensure that you aren’t being taken advantage of in the negotiation process or setting yourself up for a frustrating leasing situation.
At the end of the negotiation process, you should feel good about the deal you signed, and by utilizing your ability to walk away, you can ensure that your lease and space are both tailored to your exact needs.
Paying attention to infrastructure means paying attention to the nitty gritty details, but it’s these details that save you time and money in the long run. Below we have your guide to all things infrastructure for your new office space.
Movable Partitions and Furniture
As your business changes size and scope, having appropriate accommodations will make this transition seamless. Movable partitions and furniture are an easy and cost-effective way to accomodate for the expansion of your business. Seeking infrastructure that lends itself to the incorporation of movable additions is an imperative way to adequately plan for your company’s future.
We all run on wifi these days, and your new building should be able to support that need for the entire office. Infrastructure plays a huge role in how easy or challenging it may be to set up your necessary systems. The difference between fast and effective wifi and internet that drags can be in the way your space is designed. Before you commit to a space, have the landlord run a network test on existing channels to ensure they work properly. If any of the cablings needs to be restructured, it could turn into a more costly project.
Ensuring the safety of your employees and important information is crucial. Consider if the space you’re looking at has a doorman or if there’s already a security system. If the security system needs to be updated or if one needs to be installed, this could turn into a costly and expensive project. Be on the lookout for existing security and how that aligns with what you need to ensure the safety of your employees and company assets.
It’s easy to overlook things like sprinkler systems or outlets. If the sprinkler systems don’t function properly, you’re putting your employees at risk and either you or your landlord will be required to replace them. As for electricity, it’s recommended that you ask your landlord to run an electricity survey to gauge how much electricity your office space is using. Understanding the efficiency of your electricity and utilities can save you time and the surprise of higher-than-expected utility bills.
The inside of your new location is just as important if not more than the actual physical location. Weigh the pros and cons of location and infrastructure to narrow down the types of office locations you’re considering.
Where you work matters. That’s why we’ve partnered with an online software platform to make it easy to search for spaces that are specific to your needs. All you need to do is enter your information here, and you will be given access to a database of office space listings complete with virtual tours, floor plans and all-in monthly prices. Finding the space of your dreams is only aclick away.
When you’re looking for a new space, having a budget is essential. As you check out potential locations it’s important to understand the not-so-obvious costs that may pop up as you transition to your new place.
Just as we mentioned in our location blog, understanding parking is an essential part of running a business. Depending on the area you’re looking to move to, parking can be a lot more expensive than you initially thought. If a significant percentage of your employees are driving to work and parking, you may be able to make a deal with a nearby garage so your team has the resources to get to work easily.
Before signing the dotted line on your new lease, you should understand every associated cost. You’ll be locked into this lease for an extended period of time, so it’s of the highest importance to know exactly what that means for you and your business. There will be a security deposit required which is typically 30% of your landlord’s out of pocket expenses, and additional fees for utilities not included, after-hours HVAC use, and possibly janitorial services. There may also be termination penalties if for any reason you were to break your lease earlier than expected.
Different spaces call for different furniture, and what you have on hand may not always work in your new office. If you’re adding collaborative spaces or just expanding from your old office, it’s necessary to budget for any additional furniture you may need. Furniture can range anywhere from $15 to $25 per square foot, so It’s a good idea to take note of what furniture would translate to the new location and what pieces you would need to purchase.
If you decide to use a moving company to get everything from Point A to Point B, you’ll want your items to be protected. Buying an insurance policy to cover the cost of all the items you’re bringing to your next space can save you a lot of hassle if anything were to get damaged or lost. While purchasing insurance may be a little more costly upfront, ensuring the protection of your assets will give you peace of mind during your move.
Phone and Data
There’s an expense associated with wiring your space, getting your data hooked up, and potentially getting a new phone system. Often times even when a landlord commits to turnkey a space, the cost to setting up the wiring may not be included.
Phone and data wiring and set up fees start at around $2 per square foot and depending on factors like how many workstations you have, the types of ceilings you have, etc, it can go up to about $5 per square foot. Also, there can be a lag time from when you call to set up your internet service and when it actually commences. So be sure to start this process as early as possible.
A discrepancy with your budget can push back your move and set you behind. Take the time to look into any extra costs that could come up, and budget for the unpredictable. This strategy will ensure that money will not inhibit your big move.
The rapid growth of a startup causes changes to come quickly, which makes it challenging to find an office space that will grow with the business. When beginning the search, consider the projected growth, business plan and the needs of the company to find the best suitable space.
Young companies experiencing hockey stick growth will quickly find themselves with an overcrowding issue, especially if they didn’t plan ahead during the search. Plan for an extra 10 – 20 percent of space to prevent overcrowding in the future. In doing so, you’ll save money by avoiding lease termination fees, as well as eliminate the hassle and expense of subleasing and seeking a larger space before the lease expires.
Being able to grow within a building or a landlord’s portfolio is extremely important. Seeking space in a smaller building, like the ones typically found in River North and River West, can be quite limiting, especially as many of those landlords only own one property. Leasing from a larger landlord, like the ones found in the Loop, provides a tremendous amount of flexibility when the time comes to expand. A larger building, or office portfolio, allows that landlord to easily relocate a growing tenant to accommodate their expanding space needs.
Real estate will always be about location. When finding the right office for a startup, consider where it’s located in proximity to employees, current clients, potential clients and vendors. Remember that if the space is out of the way, it will make it difficult for prospective clients to find the business. Location also plays a role in employee retention and morale, as well as talent acquisition.
When launching a new company, one important aspect is the cultivation of its culture and the office needs to reflect and reinforce it. A financial services startup may need a more structured environment with more private offices and sound proofing. Whereas a creative firm will want an office with more open spaces for collaboration. Additionally, confirm if the space will be able to accommodate the specific needs of an industry. For example, a company with heavy IT needs will want a space that is able to power and protect all of the equipment.
Finding the right office for a startup will build a solid foundation for future growth and success. Remember that having an experienced commercial real estate broker involved from the beginning of the process will save both time and money. Tenant Advisory Group has worked with a variety of growing startups and is happy to share how they have successfully handled the needs of budding businesses.
Negotiating the terms of a commercial real estate lease is difficult, as it is fraught with jargon, clauses and paperwork, and even the slightest misstep can have dire consequences for a business’s bottom line. Hiring the right real estate broker and attorney team to handle this delicate process is the best way to guarantee the most favorable terms while saving you time and money.
They Understand the Industry
Too often, a business owner will request help in negotiating lease terms from an attorney friend or a neighborhood real estate agent. However, these professionals may not be familiar with the industry-specific ins and outs of a commercial real estate lease. A dedicated real estate attorney/commercial broker team will review the terms of the lease with expert eyes, navigating the provisions and clauses to establish the final document.
They Can Ask for More
Real estate is a hyper-local specialty, meaning an experienced commercial real estate attorney/broker team is going to have market knowledge regarding tenant improvement allowance and rent abatement. The team will understand where to push back and what is fair for the market. This will result in a far less contentious negotiation, establishing a good rapport with the landlord from the beginning.
They Can Strategize
There are many ways to “get more” out of your lease, and only professionals working in the industry would even know to ask. For example, the lease renewal clause is a point of concession that can greatly benefit your lease terms down the line. A commercial real estate attorney/broker team will work together to create a plan that will include more than simply lower rental costs.
When working with Tenant Advisory Group, we have access to a deep bench of quality connections, including top-tier real estate attorneys to help achieve the best results possible.
Listing a property for the highest possible price may seem like the best course of action, but more often than not it will deter buyers and negatively affect the final sale price. Establishing the price in line with comparable properties in the area, or slightly lower, will help move the property faster with less cost to the seller.
Rather than focusing on the final sale price, keep in mind the cost of NOT selling the property. When a listing sits on the market for months, it accrues ongoing caring costs like maintenance, property taxes, rent, etc. Holding out for a higher sale price can actually net a lower gain in the end. There can be a heavy cost to owning a property.
Timing is Everything
Identifying the right buyer is more than finding who wants to pay the most. It’s also about moving the property in a timely manner. When presented with a purchaser who wants to buy now but at a lower price than someone who wants to wait six months but at a higher price, it can be more beneficial to sell sooner than to hold out for more money. If you wait for the buyer with the longer timeline, you’re accruing costs the entire time. Additionally, it’s important to remember there’s no guarantee the potential sale won’t fall through.
Best Way to Maximize Value
Selling a property can become quite complicated, and most business owners don’t have enough time to dedicate to the process. To get the most value out of the deal, it’s recommended to enlist the services of an experienced commercial real estate broker. These professionals possess market knowledge and experience to help sell a property for the best price in the shortest amount of time.
Pricing the property correctly saves time, which saves money in the long run. Remember to stay informed on every aspect of the deal, from pricing to concession, as this will ensure you’re comfortable with your sale.
The landlord is an integral part of the commercial real estate leasing experience, which is why this person or entity needs to factor into any final decisions. A lot can be revealed about a landlord by the way they handle the negotiation process, as this is a window into how they treat existing tenants. For example, someone who tries to use bait-and-switch tactics isn’t going to change once you become a legally-bound renter! An easy way to tell a good landlord from a bad one is to identify if they value quality tenants over maximized profits.
Communication is Key
Good landlords are transparent and responsive, especially when they want you as a tenant. Ideally, a future landlord will stay in communication regardless of the situation, providing explanations for any lapses in response. Remember, there are most likely other deals in process that may prevent you from winning the space. However, a worthwhile leasing professional will work with a prospective renter to find a different available space.
Well-Capitalized is Ideal
When a landlord has a large amount of money to negotiate with, they are referred to as “well-capitalized.” There are a variety of reasons why a landlord is flush with capital, such as a recently refinanced building, or having a REIT or sovereign wealth fund as owners. Regardless of the source of funding, this means they are able to offer larger concessions in the form of free rent or tenant improvement allowances. In addition to incentive packages, well-capitalized landlords are able to invest more money back into improving the building. Independently-owned operators typically don’t have access to the large amount of funds needed to pay for a tenant’s buildout or even fix ongoing problems properly or in a timely manner.
Professionals are Best
Tenant Representatives are generally well liked by successful landlords as they work with all parties involved to ensure terms are met, stipulations are understood and proper channels are followed. The quality of business a tenant representative brings to the table – high-quality ancillary professionals – often encourages landlords to make more concessions on a deal with either a current or new tenant.
However, short-sighted landlords can become concerned about paying a broker to renew a tenant or acquire new business. These owners don’t take into account the long-term benefits, rather than the short-term costs. It demonstrates a potential unwillingness to pay to keep the building in good shape, repair the elevator or HVAC or clean the windows and building. If a landlord pinches pennies now, they will surely react poorly down the road when something doesn’t go their way.
The lowest price option is not always the best choice, as it commonly comes with a lack of amenities, service, upkeep and concessions. While lower rent is attractive, there is much more value derived from concession packages. Additionally, if a business uses its own money for a buildout then they won’t have that capital available to invest in the business, making it a very costly way to use available funds.
Landlords gain a lot of value when they sign new tenants or retain existing ones, especially if the building is up for sale, and good landlords know a broker can help them do exactly that to increase the value of their building.
The lease negotiation has the potential to provide several, lucrative concessions and rights for the tenant, as long as they are requested and properly defined. What most tenants don’t realize is that most landlord’s are sitting on a pile of money that is available to be allocated towards the incoming tenant in the form of lower rent, free rent, tenant improvement dollars or a combination of the aforementioned concessions. How that money is distributed is determined by the terms stipulated in the lease.
Many believe stronger financials will equate to a more expensive deal. However, the lease revolves around the landlord’s risk of the tenant. A company with a strong financial history represents less risk, which means the landlord will offer better terms to entice the potential tenant. The lease negotiation process is similar to how a bank assigns a loan- the terms are based on the amount of risk. Since the landlord is investing in the tenant, the landlord will often spend money upfront to secure a tenant with the highest probability that they’ll pay rent throughout the entirety of the lease. (If a business goes bankrupt mid-lease, the landlord has the potential to lose a significant amount of money.)
Where many inexperienced commercial real estate negotiators miss opportunities in the lease is by not building in provisions for flexibility. This becomes a critical factor for rapidly growing businesses that often take on far more space than necessary to account for projected growth. While it is smart to plan ahead, at Tenant Advisory Group, we recommend you take on the space you need today with a moderate amount of excess room for planned growth. The reason being is that the office is often the second largest expense of a company. Paying for space that is not being used will unnecessarily burden the financial statements and inhibit a business’ ability to grow. Building in flexibility through rights of first refusal or rights of first offer is a far more effective and economical way to foster a company’s growth. Rights of first refusal and rights of first offer create the opportunity for a business to expand at a future time, if and when necessary.
An extremely valuable piece of negotiation leverage is the right to terminate. This assures a growing business can leave a small space, and move into a larger one when the timing is right. How it works is it provides an opportunity to renegotiate the lease while setting a cap on the rental rate. It can extend the terms of the lease to keep the rent lower than the market rates, and if the market prices drop, you can leverage it to lower rent. Another great piece of leverage is the right to renew, though to be most effective it must stipulates cap on how high the rental rate will be at renewal. Similar to the right to terminate, it allows the company to renegotiate the rent down and prohibits the landlord from renegotiating the terms back in their favor.
In order to obtain the largest concession package, demonstrate strong financial security; request a right of first refusal and/or right of first offer, a right to renew and the right to terminate. When combined, these facets of the lease will significantly improve the quality of life for a business while reducing the strain on the company’s financials.
When building your office floor plan, it’s always better to have more room than not enough space. Packing people into an office lowers employee satisfaction and can lead to a counterproductive work environment, which may negate any money you save in rent. By offering your staff more free-space and a comfortable office, not only will you leave room for growth, but morale will maintain a healthy level, leading to a happier and more efficient business.
The structure of an office plays many roles from safety (overcrowded spaces can block exits) and employee happiness to an effective recruitment tool. For example, the open office design has become popular among employers and employees in recent years. Originally, the idea was that it promotes collaboration and enhances the energy of the office. However, the reality of this layout is that only a small subset of businesses benefit from it. Oftentimes, this style of office layout amplifies the negative effects of overcrowding, as finding a quiet moment to compose emails, reports or make phone calls can be a challenge. A poorly strategized, overcrowded work environment can have a direct effect on the productivity of a business.
Less Productive Employees
Employees are the lifeblood of any business, and their productivity is directly tied to their happiness. Smaller, packed offices have a negative impact on the mental and physical health of employees. Not only are environmental stressors increased by the higher noise levels and reduced concentration, but funneling employees into a compact space can also increase the risk of communicable illnesses. (This means colds can incapacitate more of your workforce). Additionally, more workplace conflicts can arise from the frustration of a packed, loud environment. More sick days, frustrated workers and a lack of privacy all lead to a decline in employee happiness and productivity.
Prepare for the Future
A strong business model considers the future growth of a company. In order to avoid overcrowding an office, search for an office space that accounts for reasonable projected growth. Oftentimes, an extra ten or twenty percent of office space can prevent a lot of issues from arising. While it may seem like an unnecessary expense, it has the potential to provide greater returns in the future by avoiding terminated lease fees, increasing the lifespan of office equipment and better lease terms that come with a longer lease duration. Not only that, but a company that places its employees first with a comfortable work environment will attract more top talent.
Properly building your office for its current population plus future growth will offer many long-term benefits to your business. Increased productivity, safe workspaces and a boost in employee morale all stem from providing employees with a comfortable workspace. Speak with a professional broker when searching for a new office, as they will be able to offer valuable advice that can contribute towards the success of your business.
Relocating your company to a new office space is an exciting time, full of endless possibilities. Such a large undertaking will of course create stress, but proper planning in advance will save you and your business time, money and hassle.
Tenant Advisory Group has helped hundreds of companies grow their business in a new space. See below for key tips we provide our valued clients.
Build Your Team
A company relocation has too many moving parts for one person to handle. It’s important to have a solid team in place to keep track of every detail. Here are a few of your key players:
- Involve your moving company in the planning process as early as possible to get the best estimate on your relocation timeline. Contact your furniture vendor and/or partner with an interior designer to plan the look and layout of your new space.
- Have an in-house or on-hand technical expert who can spearhead setting up and migrating your phone and data systems.
- Designate at least one employee as the Move Captain. This person will communicate clearly with staff regarding packing procedures, as well as what to expect in the new location.
Take or Toss
Starting fresh in a new office presents the opportunity to shed items you may not have use for anymore.
- Before making any decisions, prepare a complete inventory of everything in your office — from the conference tables to paperclips.
- Comb through sensitive items such as bank statements, contracts, invoices, client information, etc. Either pack items in secure filing boxes or arrange for a shredding service to take them away.
- Get rid of unwanted electronics, computer equipment and furniture by either recycling or donation. Make sure to gather the necessary paperwork for potential tax write-offs.
Spread the Word
Let your entire network (clients, vendors, professional organizations, etc.) know that your company has a new space and address.
- Make a list of your current clients and vendors, and notify everyone of your change of address to avoid any hiccups in business or productivity.
- Prepare and order new stationery, business cards and envelopes to reflect your new location.
- Contact the post office to have all mail forwarded to your new address.
For questions about how Tenant Advisory Group can make your Chicago relocation as seamless as possible, contact us today.