Top 4 Things to Know in Office Leasing
1. You matter to landlords: 78% of office leases in NYC are under 10,000 square feet, and 56% are under 5,000 square feet. You don’t have to be a large space footprint to matter to a landlord; smaller space footprints are the lifeblood of the NYC real estate market. Landlords look at more than just size when considering a tenant; are you good for the community? How financially sound is your firm? Is there growth potential here? Who are you serving? In a slightly softening real estate market, a landlord would rather keep you than negotiate a new deal with a new tenant, so you have leverage.
2. Know the market (here’s how): like with any decision, you need to stay informed. Identify 3 spaces that work for your real estate requirements and get detailed pricing and amenities information on them. By comparing similar spaces, you’ll quickly understand value and have a first-hand benchmark to pricing and concessions. Having options that all work also gives you more negotiations leverage on any of the given spaces. Even if you are planning to renew your current lease, showing your current landlord that you have options gives you the same leverage to negotiate a better deal on your renewal.
3. Lease basics:
(a) you’ll have 4 basic costs: 1) base rent: $x / sf per year; 2) electric: typically $3.00-3.50/s.f. per year; 3) escalations: typically 2-3% of base rent per year, increasing annually & cumulatively; 4) proportionate share of real estate tax increases above a base year: everything except the increases should be on the landlord.
(b) concessions you should ask for: at minimum, you should get a few months of free rent at the start of term, and money to build out the space to your specifications, or a tenant improvement allowance. Beyond this, you may be able to negotiate expansion options, termination rights, a burn-down on the security deposit, and other give-backs.
(c) most landlords will ask tenants to sign a good guy guarantee: This means that they are legally allowed to hold you personally liable for costs incurred if you stop paying rent and refuse to vacate the space. This does not mean you are personally liable if your business declares bankruptcy or can no longer pay rent; if these happen, you’re safe so long as you vacate the space accordingly.
4. Representation will get you a better deal, at no cost to you: showing up to a deal negotiation without a broker is similar to showing up to a courtroom without a lawyer; the other side has one, and chances are they know what they’re doing more than you do. When a landlord is approached by a broker, they know that you’re out in the market and have options; in other words, they need to make a market deal with you or you’ll go elsewhere.
On your end, working with a broker saves you the time and money of having to deeply understand and negotiate steps 2 & 3; that’s our job. Working with an experienced, trustworthy tenant side only broker will not only save you time and money, but also will save you from falling victim to conflict of interest. Because NYC is a “landlord pay city”, your tenant rep is paid by the landlord because its representation you are entitled to; you do not pay for this service.