Business is great. You’re growing, hiring more employees…running out of office space. New digs would have been nice – yesterday.
Although it is one of a business’ biggest monthly expenses, office space tends to be a secondary thought.
“It should be something you are considering early and often, and getting educated on,” says Jones Lang LaSalle Associate Andy Effler.
Just as you would rarely, if ever, take on the the home buying process on your own (or in a rush), so is the same for real estate lease negotiations. Resources like JLL (and this handy primer) exist.
Specializing in real estate strategy, services and support, JLL brings a unique angle to the office hunt.
“We are tenant representatives so we work with companies directly,” Effler says, carving out his own niche in the startup world. “My job is to educate the client on the market and the trends shaping the market, and from there we go and look at the market as a whole.”
The goal is to find out what product (office space) is available and match a business with what best fits their needs (aka not just showing the stock of just one landlord).
Effler breaks down the process, and offers some tips for all businesses to put themselves in the best situation possible for when it’s time to move on up.
Time & Negotiations
The more time, the better. Many businesses assume they can just go out into the market, find space and sign a lease. No negotiations.
“If we are not able to leverage other opportunities in the market….then you just get stuck in a situation where you need to get it done,” Effler says.
If a business has the foresight to start the process 12 months out, amazing, but that’s not always realistic. A six-month window still gives a company time to explore options and negotiate. With time, Effler can work with a business to strategize on goals and budget, discussing questions like ‘What percentage of your total spend on an annual spend should come out as an occupancy spend?’
There’s also a certain amount of managing expectations early on. Effler describes it as finding a balance between a good space that suits a company’s needs and one that won’t be a burden. Especially when a company is young and still growing. It’s never too early to think about what’s next, next.
Now that a business has office space on its radar, some key negotiations during the leasing process can put a company in a better lane for future moves. Perhaps you own a tech company that grows its team by five people every time you take on a new client. Effler encourage businesses to negotiate some flexibility into the lease, accomplished through measures like a termination option, right of first refusal on adjacent space, or options to expand across a landlord’s stock of space.
Here’s How This Works
Six months may seem like a long lead time, but breaking down what the process can look like – that time goes quickly. To get things rolling, Effler will spend two to three weeks talking strategy, goals and objectives and educating clients on the market. The next month is spent scoping out three to seven viable options. With a short list of top prospects, it’s time for requests for proposal (RFPs). These documents will lay the groundwork for negotiating major business and economic items that need to be agreed upon by your business and the landlord.
Once the initial proposals are back from the landlord, let the negotiating begin! When the RFP is firmed up and generally agreeable to both parties, enter the letter of intent. Effler points out that this letter expresses intent – it’s non-binding and is meant to be a representation of what you both anticipate to be in the lease. When the actual lease comes back, then it’s time for your lawyer. An attorney should handle all legal matters regarding the final agreement. A representative like serves Effler to educate your lawyer on the market and answer real estate questions.
That’s the general process, but there’s another timeline to consider – how long will the build out take?
“You want to dive in and figure out what’s currently in the space and obviously what improvements we need to make to meet your needs as a company,” Effler says.
He notices that when people go the DIY route, they often take the space as-is and move their stuff in without taking time to consider factors like if the space has the proper wiring or electric. How long it will take to build out an office space depends on the extent of the changes, but the permitting process alone can take up to four weeks.
Moving comes with its own set of expenses. Effler says one of the biggest cases of sticker shock is furniture. If a business goes through a traditional office furniture vendor, prices equate to about $20 – $24 per square foot for standard product. In a 1,000 square-foot office, that’s $20,000 and a huge up front expense. Not every business will go this route, but furniture vendors can also be instrumental in layout design.
If there is extensive build out required in your new office, an architect will likely be involved – another expense. Your attorney should be involved in lease negotiations as well. Other fees to consider include moving costs (truck, movers) and data and cabling.
The Market in 2016
It’s a hot market for the 30 million square feet of office space in Columbus. Effler is seeing a lot of demand and a lot of movement with limited availability. All the more reason to have a representative to help.
As the Columbus startup ecosystem grows, Effler is noticing other trends in the type and location in which businesses are searching for office space.
“A lot of millennials are looking to stay in Short North, Downtown, Grandview, Italian Village, even German Village,” he says.
This central business district has the highest rates, but is generally the most attractive.
Effler echoes trends other businesses are seeing like a penchant for warehouse and industrial spaces and open floorplans. There are fewer private offices and more collaborative environments. There’s a time and a place for the small business that needs privacy and offices, but Effler sees a definite trend towards the density of a workforce in a smaller footprint.
“People want to fit a lot more people in a lot less space,” he says. “Hardwall offices are not going to create that opportunity.”
Putting more people in less space is leaving one big question mark – what to do about parking. Already at a premium in many of the desired areas, parking needs are trending towards six to seven spaces per 1,000 square feet. It’s an expense and issue many business don’t consider when looking for an office.