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LEASING INFO
We can help you find a great space -- at no cost to you!
How? Leasing transactions are very similar to residential transactions. The seller of the property pays a fee to sell their home. That fee is split at closing with no expense to the buyer/lessor.In much the same way, the landlord's broker splits the leasing commission with us so you can benefit from our Tenant Representation services at no cost to you!
Common Mistakes
Negotiating without professional representationIf you negotiate for yourself, it is very likely that you are leaving money on the table. With Austin Office Space on your side, your agent will know the best deals being made in the market and will negotiate against the owner for every possible concession. The expert knowledge of a third party negotiator gives you powerful leverage to get the best deal. (Use an office leasing specialist, even if it is not us!)
Underestimating time - signing a lease can be a complicated and time consuming process.
Every week we receive calls from people who need to move within 30 days. Although possible, it can be difficult and more costly. Relocating a business and signing a lease is most often a very involved, time-consuming process. We encourage our clients to start working with us AT LEAST three to six months in advance.
Working directly with the building agent
Building leasing agents have a legal obligation to represent the owner's interests at all times. They will not volunteer negative information about the property they are representing or tell you that the owner will accept a lower rental rate. The owner has an expert on their side protecting their interests-- who is on your side?
Underestimating the complexity of the leasing process
Although leasing office space may not be brain surgery, it is a detailed, time-consuming process. It can be very stressful to run a business while trying to negotiate a lease and move at the same time. Allow plenty of time for each step of the process and get expert help. Handling all the leasing details is what we brokers do best.
Paying the sticker price
All business terms in a lease are negotiable. Most landlords set their initial lease terms in much the same way car dealers set automobile prices - higher than they are willing to accept. After we receive a Lease Proposal from a landlord, we make a counter offer to negotiate for better terms. In your letter of intent we can suggest a lower price, higher Tenant Improvement Allowance and free rent. Our office leasing specialists know exactly what to offer to arrive at the best deal possible.
Pretending to be a lawyer
Reviewing your own lease is like playing a football game without pads or a helmet. Unless you are a lawyer or a commercial real estate agent, you need help sifting through the lease and protecting your interests. The owner's lawyer has drafted 30 legal -sized pages of 8-point type to make sure that the owner is protected at all costs! It is the job of your attorney and broker to point out potentially serious problems with the contract.
Deal Points
RateThe overall occupancy cost is the most important factor when evaluating a lease deal. The "effective rental rate" is the number that you should use when comparing lease proposals. Your effective rate is the figure you get after factoring in free rent and other cash concessions. Example: 1 month free and then 12 paid months at $18 per SF = $18 X (12/13) = $16.62 Effective Rate.
Free Rent
Free rent is a very important part of the occupancy cost that can lower the effective lease rate for the tenant but still leave a "higher" lease rate for the landlord when they go to sell the building. Free rent also allows tenants to use the cash they would normally spend on rent to pay for movers, wiring and furniture. Free rent is typically given on the front end of the lease and is in addition to the agreed lease term. Example: 5 year lease with 2 free months = 62 months of occupancy.
Term
The length of your lease determines how aggressive a deal your broker can negotiate for you. Short term leases of 1-3 years expire so fast that another vacancy and lost income is just around the corner for the owner-- not very attractive. Long term leases of 4-10 years equals low vacancy and high profits for the landlord. The costs incurred by the landlord with each new lease signed (legal fees, tenant finish-out and brokerage fees) must also be amortized over the term of the lease. Landlords are willing to invest more in your tenant improvements if they can justify the up front cost with a long term rental income stream.
Tenant Finish-out
The more money you ask the landlord to spend getting your space ready for your lease, the less flexible they will be on rate. New paint, carpet and walls might seem like a benefit to the landlord too but it is really just seen as an expense. By the time your lease is up the space will need to be updated again from wear and tear and different preferences of the next tenant. You can negotiate better lease rates if you can find a space that substantially meets your needs as-is. The cost savings to the landlord can be realized in a lower negotiated rental rate.
Move-in Date
The sooner you can move in, the better. Vacant space is lost income for the landlord. Everyday a space sits vacant is cash down the drain. If a quick move is possible, it is easier for your broker to negotiate free rent and other concessions for you. If you try to negotiate for an occupancy date too many months in the future you will lose substantial negotiation leverage. A landlord asked to "hold" a space off the market waiting for your occupancy would lose months of rent and much of the desire to bargain with you. Timing of lease negotiations is critical.
Financial Strength
Your company's financial strength is VERY important to landlords. Tenants are required to furnish their financials for review (typically, Balance Sheet and Profit & Loss statements). Many businesses are setup as limited liability corporations which can easily run out of money and declare bankruptcy. A personal guarantee from a financially dependable principal or a substantial deposit is often required if the corporate financial strength doesn't satisfy the owner's requirements. Landlord's are looking to lease to profitable companies with a track record of success and stability. The most financially viable companies have the greatest negotiating power with landlords.
Lease Structures
Flat RateBase lease rate remains the same for all years of the lease. More common in short term leases.
Stepped Rate
Base lease rate increases each year of the lease. This is characteristic of most office leases. A lease with an $18 starting rate and $1 increases or "bumps" would look like $18 yr.1, $19 yr.2, $20 yr.3. The most common bumps in the Austin market are $.50 - $1.00 per year.
Renewal Option - Market Rate
Within the lease structure, the renewal option allows the tenant rights to renew the current leased space at the end of the lease term. Often the tenant is required to give the landlord 60-120 days advance written notice of their intentions to use the renewal option. It is typically stated how many years the tenant must renew for but leaves the rate open ended-- "at the then prevailing market rates". This renewal option protects the tenant from having their space leased out from under them by adjacent tenants. Landlords don't like giving options because it restricts their leasing flexibility.
Renewal Option - Stated Rate
The rate at which the tenant can renew is guaranteed and stated in the lease. Only the biggest tenants are able to negotiate a stated rate renewal. This option is a huge risk for the landlord and is only given to attract the best tenants.
First Right of Refusal
A condition that the landlord must offer available space in the building to the tenant before leasing it to someone else. Typically this right is only given on adjacent spaces and is used to help a tenant with growth concerns when signing a long term lease. The tenant must take the new lease space at the rate pre-negotiated with the other prospective tenant. Often, this right of refusal is only good one time and the tenant has only a few business days to make a decision. If the space is refused, the landlord has no further obligation to make it available to the tenant in the future.
Right of First Offer
Landlord must offer the tenant space as it comes available but is not required to have another tenant ready to lease it.
Warehousing
Warehousing is a leasing strategy to accommodate future growth. The tenant leases more space than they currently need and subleases the extra space to smaller tenants for short terms. The idea is that the master tenant will need the space about the time the sublease expires so they will have space available to grow into. This was very common during the dot com boom when occupancy was around 97%. This is still a viable option for growing companies but can be financially risky.
Staggered/Incremental Takedown
Example: Tenant signs a 5 year lease for a total of 10 ,000 SF. The company is growing and will need 6 months to add staff and fill the entire space. Tenant negotiates to pay rent on only 5,000 SF for months 1-3 , 7,500 SF for months 4-6 and the full 10,000 SF for the remainder of the term. This guarantees that the landlord will have the entire space leased and allows the tenant to have all the tenant improvements done to their specifications at one time.
Buyout Termination Clause
Tenant has the right to end the lease by paying a fee equal to the un-amortized tenant improvements, free rent and leasing commissions. This is typically an expensive proposition for the tenant but does provide flexibility. Some nonprofit tenants with public funding need to have this option since their funding is allocated one year at a time. Landlords are very reluctant to make this concession in their leases.
Syncing Lease Terms
Expansion within your current building is a good way to grow without incurring the cost or inconvenience of moving. Often you can lease another suite and sync the new lease expiration to your primary lease. Syncing lease terms is a good strategy for companies leasing in multiple locations also. This allows you to move your whole operation to a larger contiguous space when all the leases expire.
Terminology
Rent Calculations
Base Rent
The amount of minimum stated rent. This is the amount of money that is applied to owner's mortgage, capital improvements, and profit.
Gross Lease
A type of rent calculation where the rent includes the base rent and all expenses. Expense increases each year of the lease will be passed on to tenant in the form of Expense Pass Throughs.
Expense Pass Throughs
Expenses that the tenant is obligated to pay according to the terms of the lease. It is customary for tenants to pay their pro-rata share of expense increases. Expense pass throughs are usually handled like the escrow account on a home loan, with the tenant paying an estimated 1/12 each month with an annual reconciliation.
Expense Stop
This is a method of implementing expense pass throughs. The tenant pays expenses over a specified amount per square foot. For example, the Expense Stop may be $9.00 per square foot. If expenses are $9.50 per square foot, then the tenant is responsible for paying $.50 per square foot. Often the first year (base year) is used to set the expense stop amount to be used to calculate pass throughs for the following years.
Triple Net Lease
A type of rent calculation where the rent cost is split up into a Base Rent amount and a separate expense amount call Triple Net (NNN).
Triple Net or "NNN"
Typically, expenses are placed in three categories: taxes, insurance, and operating expenses. The term "triple net", which is also written "NNN", means that the tenant pays all expenses as a separate charge. (It is implied that each "N" refers to one of each of the categories.) Triple net is a shorthand real estate way of saying that the tenant pays base rent plus 100% of all expenses.
Gross Lease vs. Triple Net Lease
These are two ways that owners handle their books. Both basically have the same total cost to the tenant. The only major difference is that a Gross lease has a guaranteed rate for the first year and a Triple Net lease uses an estimate for the first year expenses, which can be higher or lower than budgeted.
The amount of minimum stated rent. This is the amount of money that is applied to owner's mortgage, capital improvements, and profit.
Gross Lease
A type of rent calculation where the rent includes the base rent and all expenses. Expense increases each year of the lease will be passed on to tenant in the form of Expense Pass Throughs.
Expense Pass Throughs
Expenses that the tenant is obligated to pay according to the terms of the lease. It is customary for tenants to pay their pro-rata share of expense increases. Expense pass throughs are usually handled like the escrow account on a home loan, with the tenant paying an estimated 1/12 each month with an annual reconciliation.
Expense Stop
This is a method of implementing expense pass throughs. The tenant pays expenses over a specified amount per square foot. For example, the Expense Stop may be $9.00 per square foot. If expenses are $9.50 per square foot, then the tenant is responsible for paying $.50 per square foot. Often the first year (base year) is used to set the expense stop amount to be used to calculate pass throughs for the following years.
Triple Net Lease
A type of rent calculation where the rent cost is split up into a Base Rent amount and a separate expense amount call Triple Net (NNN).
Triple Net or "NNN"
Typically, expenses are placed in three categories: taxes, insurance, and operating expenses. The term "triple net", which is also written "NNN", means that the tenant pays all expenses as a separate charge. (It is implied that each "N" refers to one of each of the categories.) Triple net is a shorthand real estate way of saying that the tenant pays base rent plus 100% of all expenses.
Gross Lease vs. Triple Net Lease
These are two ways that owners handle their books. Both basically have the same total cost to the tenant. The only major difference is that a Gross lease has a guaranteed rate for the first year and a Triple Net lease uses an estimate for the first year expenses, which can be higher or lower than budgeted.
Space Calculations
Square Feet (SF)
How commercial space is measured. The abbreviation SF is often used to mean rentable square feet when quoted by a broker or on a floor plan.
Usable Square Feet (USF)
The space within your suite that you have exclusive use of.
Add-on Factor / Load Factor
A percentage used to estimate your pro-rata share of the common areas outside your individual suite. Typically between 10-18%.
Rentable Square Feet (RSF)
This is the Usable Square Feet plus the Add-on Factor. Example: 1,000 USF x 1.15 (1+15% Add-on Factor) = 1,150 RSF.
Common Area
Building lobby, elevators, hallways, bathrooms, etc.
How commercial space is measured. The abbreviation SF is often used to mean rentable square feet when quoted by a broker or on a floor plan.
Usable Square Feet (USF)
The space within your suite that you have exclusive use of.
Add-on Factor / Load Factor
A percentage used to estimate your pro-rata share of the common areas outside your individual suite. Typically between 10-18%.
Rentable Square Feet (RSF)
This is the Usable Square Feet plus the Add-on Factor. Example: 1,000 USF x 1.15 (1+15% Add-on Factor) = 1,150 RSF.
Common Area
Building lobby, elevators, hallways, bathrooms, etc.
Space Improvements
Finish Out, Tenant Improvements (TI)
Improvements made to the lease space to suit the tenant such as new paint, carpet and walls.
Tenant Improvement TI Allowance, Finish Out Allowance
The dollar amount, usually per square foot of Net Rentable Area (NRA), paid by the landlord for the improvements to the space.
Turn Key Finish Out
Refers to the landlord paying 100% of the finish out cost. All you have to do is turn the key and move in.
Shell Space
Unfinished space without interior partition walls, carpet, electrical, ceiling grid and tile, electrical, or duct work. Shell space usually refers to first generation space in new buildings where the finish out will be the first for the space.
Lease NegotiationsImprovements made to the lease space to suit the tenant such as new paint, carpet and walls.
Tenant Improvement TI Allowance, Finish Out Allowance
The dollar amount, usually per square foot of Net Rentable Area (NRA), paid by the landlord for the improvements to the space.
Turn Key Finish Out
Refers to the landlord paying 100% of the finish out cost. All you have to do is turn the key and move in.
Shell Space
Unfinished space without interior partition walls, carpet, electrical, ceiling grid and tile, electrical, or duct work. Shell space usually refers to first generation space in new buildings where the finish out will be the first for the space.
Request for Proposal (RFP)
A one-page document requesting a written lease proposal from the landlord, which states the length of term and finish-out desired by the tenant. This helps the landlord tailor the proposal to the tenants needs.
Lease Proposal
A non-binding written proposal from the owners broker saying, "This is what owner will accept." Included in the lease proposal are all of the business terms of the proposed lease.
Letter of Intent (LOI)
A non-binding document from the tenant's broker that is used to negotiate the terms of the lease saying, "This is what the tenant will accept." Items outlined include: rental rate, move-in date, tenant improvement allowance and lease term.
A one-page document requesting a written lease proposal from the landlord, which states the length of term and finish-out desired by the tenant. This helps the landlord tailor the proposal to the tenants needs.
Lease Proposal
A non-binding written proposal from the owners broker saying, "This is what owner will accept." Included in the lease proposal are all of the business terms of the proposed lease.
Letter of Intent (LOI)
A non-binding document from the tenant's broker that is used to negotiate the terms of the lease saying, "This is what the tenant will accept." Items outlined include: rental rate, move-in date, tenant improvement allowance and lease term.
Space Classes
Class A
Typical class "A" buildings include amenities such as covered parking, granite & limestone finishes, workout facilities, and onsite delis. Tenants often include law firms, financial services and venture capitalists to whom image is very important.
Class B
Typical class "B" buildings are the most popular class of buildings. Class "B" buildings have standard amenities and a quality finish. Image is professional and priced to suit most office users.
Class C
Typical class "C" buildings are conservatively built, older properties with few recent improvements. Class "C" is ideal for non-profits and other budget-sensitive tenants to which image is of lesser importance.
Typical class "A" buildings include amenities such as covered parking, granite & limestone finishes, workout facilities, and onsite delis. Tenants often include law firms, financial services and venture capitalists to whom image is very important.
Class B
Typical class "B" buildings are the most popular class of buildings. Class "B" buildings have standard amenities and a quality finish. Image is professional and priced to suit most office users.
Class C
Typical class "C" buildings are conservatively built, older properties with few recent improvements. Class "C" is ideal for non-profits and other budget-sensitive tenants to which image is of lesser importance.
Commercial Buildings
Traditional Office Space
Traditional multi-tenant offices provide common area amenities to users, are multiple story buildings and cater to standard office/administrative uses.
Industrial
Industrial buildings are used for warehouse and manufacturing space. Industrial buildings are usually one-story, concrete buildings with overhead loading doors.
Flex
Flex space is moderately priced and provides great value for office users. Flex space can be a mix of office and industrial space. These buildings are often one-story concrete buildings with windows on one or two sides. Tenants often have a private exterior entrance with front door parking and separate restroom facilities in their space.
Traditional multi-tenant offices provide common area amenities to users, are multiple story buildings and cater to standard office/administrative uses.
Industrial
Industrial buildings are used for warehouse and manufacturing space. Industrial buildings are usually one-story, concrete buildings with overhead loading doors.
Flex
Flex space is moderately priced and provides great value for office users. Flex space can be a mix of office and industrial space. These buildings are often one-story concrete buildings with windows on one or two sides. Tenants often have a private exterior entrance with front door parking and separate restroom facilities in their space.
Move Checklist
During Final Contract Negotiations__ Choose the move day
__ Give current landlord move-out notice (typically 30 days)
__ Bid and schedule movers (mover needs to be bonded and insured)
__ Finalize build-out plan, choose paint & carpet (materials may not be in stock)
__ Order chairs, desks, cubes (new furniture could take 1-2 months to arrive)
__ Evaluate phone system needs, get bids and schedule phone move
__ Order phone lines, forwarding, service move (long distance, 1-800 numbers)
__ Order Internet access / move (can take up to 30 days for some services)
__ Evaluate computer networking needs and get wiring bids
__ Get business insurance quote for new space
__ Arrange for copier move
Immediately After Finalizing Contract
__ Order or print change of address labels for notification
__ Print new address labels for existing stationery, marketing materials
__ Order new stationery, business cards, shipping labels and forms
__ Order keys / access cards from management of your new building
__ Ask management of new building to order your suite sign
__ Send address change to customers, subscriptions, government agencies
__ Order checks with new address
Preparing for the Move
__ Install phone lines, phone systems
__ Assign new phone numbers, extensions
__ Inventory existing computers, existing furniture
__ Purge old, obsolete materials
__ Create new office layout map
__ Back up computers
__ Pack up desks, personal spaces, common areas
__ Code furniture and boxes for each office
__ Notify Post Office of Change of Address
__ Update Web site with new information
__ Obtain moving crates/cartons
__ Distribute new keys, cards
__ Collect old keys, cards
__ Reserve access areas parking meters, entrance way, loading areas
__ Coordinate move time with both management companies
__ Finalize business insurance and deliver proof to new landlord
Moving Day
__ Post directions on your old office door to your new location
__ Give new directions and phone numbers to tenants on your floor
__ Take digital pictures of the move-out condition of your old office
__ Move plants
__ Post coded signs in new office for movers
Post-move
__ Return old keys, cards to management company
__ Talk to management about your security deposit refund
__ Periodically visit old office to pick up mail
__ Schedule phone training
