Reduce Property rates

Competition is a fact of business life and never more so than in today’s environment. Top executives and business owners are forced to do more with less if they want to survive and prosper. One important way to do so is to reduce the commercial rent a firm pays to its landlord.

Since the cost of housing a business is usually the second biggest expense for most firms, reducing rent will quickly add significantly to the bottom line. If a business rents space and is nearing the end of a lease term, the decision maker has two primary avenues to pursue to reduce its commercial rent expense—renew the firm’s existing lease or relocate to another building. 

Whether a lease is renewed or the business is relocated, the good news is we expect 2017 to continue to be an excellent market for tenants to meet their cost cutting goals. An earlier post took a look at renewing an office lease. Let’s now take a look at relocating to reduce occupancy costs.

When should you start?

An approaching lease expiration is often the catalyst to review how much space is needed. An “approaching lease expiration” really means no less than 12 months from the end of the lease term. Starting early will allow the tenant to maintain its options and to create a market for its tenancy among competing landlords. Allowing sufficient time is a key component of a successful relocation.

The time needed to improve the targeted office space is one of the biggest variables as to how long it takes to relocate. The time needed for improvements and reconstruction runs from two weeks to 30 days for new paint and carpet to four to six months for a build out from shell condition. Keep in mind these improvements will not begin until a lease is signed, the security deposit is made, and the first month’s rent is submitted to the landlord.

Analyze your needs.

The ratio of square feet per employee has declined over recent years and will most likely continue to do so. Reasons for this decline include the competitive environment already mentioned, increased use of modular furniture, telecommuting, and “hoteling” (use of work stations that are not reserved to any one person but can be used by anyone when they are in the office as opposed to in the field, travelling or in customer or client’s offices).

A good architect and broker will help with the analysis of the space needed.

Questions that need to be asked and answered include:

• How will a new location affect the firm’s customers or clients?
• What is the image the firm should project through its space?
• How will relocating affect employee commuting times and employee retention and morale?
• Can the business make use of an open plan that includes more work stations/modular furniture as opposed to individual offices?
• How many employees need real privacy to be effective?
• How many conference rooms or teaming rooms are needed?
• How many people do the conference rooms and teaming rooms need to accommodate?

Execute.

Driving around looking for buildings with a “commercial office space for lease” sign and then calling the numbers on the signs is not an effective use of time for any busy executive--nor is Googling “find office space” or “commercial real estate for lease”. Hiring a competent commercial real estate agent to act on your behalf will go a long way towards ensuring your business saves both money and time. Relocating a business is disruptive and time consuming. Executives need to run their business.

Rather than waste time educating yourself on a market that is relevant to your business only once every several years or more, hire a professional to do it for you. It will save additional time if the decision maker can appoint a “point person” to work with your commercial agent to develop the short list of attractive alternative buildings and spaces. It is important to note that the agents listed on signs or in websites for available buildings and spaces work for the Landlord, not the tenant. Finally, using your own tenant representative will even the information gap vis-à-vis your landlord and its broker.

With the team assembled and your needs analyzed the search will begin in earnest. Your tenant representative will provide you with a survey(s) of available buildings and spaces. From these surveys, the goal is to come up with a short list of opportunities. Your tenant representative will obtain further information on the top choices including the “as built” condition of your selections. Although you may want a space to be built out from shell condition per your plan and specification, if you can find spaces that come close to what you need as currently built out, there will be more room to press the landlord for other concessions like free rent, reduced rental rates, and lower escalations.

Tours are then conducted of the top choices. Unless your current building has been eliminated for some reason, it is recommended that you include spaces in your current building on your tours. From those tours, the goal is to come up with several realistic alternative spaces. Your tenant representative will then exchange letters of intent with the top choices to compete the alternative spaces against each other thus making a market for your tenancy among the competing landlords. Upon receipt of best and final proposals, you will select the top choice and request that the landlord prepare a lease for review. There may be several rounds of negotiations on the lease language. Once finalized, the tenant will be expected to sign the lease and to submit the first month’s rent and the security deposit. Then and only then will any work on negotiated remodeling or improvements to the space begin. As stated above, these improvements can take anywhere from two weeks to six months to complete.

Once the work is substantially complete, the move in may be scheduled and completed. In a nutshell, this is the process to maximize the savings that a commercial tenant can achieve in today’s market which has never been better for commercial tenants.

Rick Lane is a top realtor with Weichert Realtors in the Washington, DC Metropolitan market.

He has 20 years’ experience in real estate brokerage and real estate law and construction. He is a winner of a Weichert National Sales Award (top 5% nationwide).

He is a former partner in the law firm of Thompson and Waldron and a former Vice President with the Trammell Crow Company in Washington, DC.

Rick is a graduate of the University of Virginia and William and Mary Law School. He may be reached at:..