Hiring one broker to represent you is the most efficient way to run your real estate process. A broker is essentially the quarterback of your real estate – leading a team of individuals sometimes including architects, lawyers, engineers, furniture vendors and other outside consultants to represent you in your office space search. When considering that brokers are paid by the landlord in any acquisition or renewal of space, all of this work is a free service for you.
In any acquisition or renewal of space, the landlord pays the tenant brokerage commission. When disposing of space, the tenant pays the commission to his broker and to the broker of the incoming subtenant.
There is not a set time for when you should begin thinking about your real estate; it varies based on the size of your company (the bigger you are, the earlier you need to plan.) Furthermore, the vast majority of real estate transactions are not lease expiration driven. For example, evolving business dynamics such as a merger, sale, a new fundraise, relocating employees and changes in the real estate market may necessitate a reason to think about your real estate in advance of when your current lease is set to expire.
Regardless of circumstance, there are two universal truths to this question: 1) starting early opens the door to more opportunities; 2) it’s never too early to be informed of changes in your building and/or the market, and how these changes may affect your firm.
A lot of my clients and potential clients that I meet with initially think that they want to renew. Despite this, it’s extremely important to work through a process and develop a credible threat of relocation in order to secure a good deal with your existing landlord. Renewals can be more difficult than relocations because in a renewal, both the tenant and the landlord have a lot to lose (more on that here.) Even if you want to renew, you should start thinking about your real estate 12 – 18 months before your lease expiration in order to properly evaluate your opportunities. If you start too late, your existing landlord will know you don’t have many alternatives and therefore will have leverage in a negotiation.
A loss factor is the difference between net (usable) and gross (billable) space. Mathematically, loss factors are calculated as follows:
Loss Factor = (Rentable Area – Usable Area) / Rentable Area
The typical office lease is 5 – 10 years. Since 2010, the average office lease is an 8-year term.
Nearly all leases include the base rent, real estate taxes, operating expenses and electricity costs. When signing a new lease, there can also be upfront capital costs for construction, furniture, wiring/IT and moving. Whenever we are working together, I will show you the “all-in obligation” of your real estate lease – which will include the base rent plus these other factors.
Subleases should always be considered. The advantages of a sublease are that they usually come at a discount to market pricing and can be fully furnished and wired, therefore saving you money on furniture and IT costs. However, subtenants are restricted by the Overlease (lease between current tenant and the Landlord) and therefore it’s harder to negotiate certain tenant specific rights such as a renewal option. When entering into a sublease, it’s important to understand what’s already been negotiated in the Overlease. You also have to be comfortable that at the end of the sublease term, you may not be able to renew your lease or even if you can stay, the direct pricing may be at a significant premium.
Regardless of what industry you may be in, this question is being asked more and more by clients. So far, it has been more general curiosity than a real desire to move there, but nonetheless the question is being asked. Nearly all major landlords are building or renovating major office projects in Brooklyn (as evidenced here.) It remains to be seen if demand will be able to keep up with the supply. Happy to chat more if interested; a post I wrote on Brooklyn can be found here.