Am I Getting a Good Deal on my Office Space?
“How do I know I’m getting a good deal on my office space?”
If you and your company are negotiating for office space, the most important question you should be asking yourself is “How do I know I’m getting a good deal?” It’s not enough to be told by your broker that it’s a good deal; you need to know, and data is your new best friend.
Before signing a lease, you need to know where deals are being done in your target building and/or immediate area. Why? Here’s an example. A few months ago, we were negotiating a deal for a sizable client Downtown and were shocked by what the data revealed: in one of the preeminent Downtown buildings, the bigger tenants in that building were getting the worst deals. The average base rent for bigger tenants in this building negotiated during COVID was $73 per square foot – the same as the average pre-COVID base rent. This means that in the best tenant’s market in decades, where we were seeing 25 – 50% discounts even for smaller tenants, the larger tenants (with the highest purchasing power and the most leverage) saw NO discounts in their deals. That simple and shocking data point shines a spotlight on what we already knew: often, the biggest tenants — household names with more money in the bank — were often getting worse deals on office space than smaller tenants who you’d expect to have less leverage.
How is this possible? It’s counter-intuitive and, practically speaking, absurd. If these are the tenants that landlords most want — how can their deals reflect no discounts during COVID-19, a time when landlords were absolutely desperate for tenants and deals? How can these tenants ever get a worse deal than a smaller tenant? There are two reasons:
- Someone is asleep at the switch. When the wallet isn’t so tight and office space is just another line item in a hefty budget, is anyone looking closely enough at the data? Is anyone asking if the numbers make sense given the current climate? Does the tenant even know that this data exists or how to find it or even to ask for it?
- Conflict of interest. If you’re represented by a firm or a broker that represents tenants and landlords, that conflict means someone has to get the short end of the stick — and spoiler alert, it’s probably not the landlord with a large, revenue-producing portfolio.
In residential real estate, there’s a famous saying: “location, location, location”. We’ve remixed this a bit for NYC office leasing tenants: DATA, DATA, DATA. As the tenant and client, you should always be provided as much comps data as possible to back up the proposed deal terms.
Comps data will tell you where recent deals in your target building(s) and/or neighborhood are being done, including base rent, free rent, tenant improvement allowance, and term. There’s always a spread between asking rents and taking rents, and it’s become even more significant during COVID. And beyond the base rent, comps data on recent NYC office leases will also help you understand why your broker is asking for the concessions she or he is asking for and negotiating. Trusting your broker is important, but true transparency is the only way to make sure you are getting the best deal on your office space; having the right data can be the difference between being a big tenant with deep pockets who gets a worse deal than their smaller neighbor with less leverage. The right broker will protect you with data and use it to get you the best deal.