In general, large tenants such as corporations get more attention from real estate brokers, many more and better space choices, and more attractive lease terms. To secure good space at favorable lease terms, the small space renter needs to be savvy and to ask the right questions.
PREPARING TO SHOP FOR SPACE
Joseph Real Estate Services, Ltd., Northbrook, IL, has specialized exclusively in meeting the needs of small space tenants for more than 25 years. Here are some pointers to keep in mind as you begin shopping for new office space:
Select a broker who specializes in small space tenants. You're likely to get much better attention from someone who understands your needs. Your broker should help you learn to identify exactly what your space needs are, locate rental property that best fits those needs, negotiate the best lease possible, and explain how that lease could affect you in the future.
Brokers who work with large corporate clients generally have a different orientation, have less interest, and lack a monetary incentive to give small space renters the personal attention they need and deserve.
In general, buildings that have a lot more small space tenants than large space tenants are your best bet. In these buildings you will have more bargaining power. Avoid buildings that are mostly populated by large-size tenants. In these, you'll have little leverage.
Strongly consider one-story office buildings. They often have much less loss space (common areas, hallways, reception areas, elevator shafts, restrooms, etc.) that you and other building tenants pay for proportionately as a part of your monthly rent. One-story buildings also might have other features that will be attractive to you: private entrances, parking immediately outside, the ability to control both heat and air conditioning, 24-hour accessibility, private bathroom and mini-kitchens, and no need for stairs or elevators.
Define your space specifically before you go out shopping. If you were looking for a house you would know you wanted three bedrooms and two baths, but not all three-bedroom, two-bath houses would be of interest to you. You might want bedrooms or bathrooms of particular sizes, you might want to locate some on the main floor and others on the second floor.
Similarly, you can define your office space requirements, but if this is difficult, you may wish to consult with a space planner or architect in order to be able to determine your actual space requirements.
KEY QUESTIONS TO ASK
Now you're ready to look at available spaces, but be prepared to ask questions about individual properties that interest you before signing a lease. Here are the key questions to ask so you can get all the facts you will need to evaluate individual office spaces. You'll also be able to line up apples-to-apples comparisons between all the spaces you consider.
What's the square footage? What's the loss factor (unusable space)? What's the rent per square foot of usable space?
Determine whether the rent is gross or net. Gross rent is made up of the base rent, real estate taxes and operating expenses and can include utilities and janitorial service. Gross rent can include "stops" on taxes and operating expenses meaning the tenant is liable for paying increases in taxes or operating expenses over a specified dollar amount. Ask for current numbers on both and find out for which year you are being quoted.
Net rent consists of base rent alone. The tenant will pay taxes and expenses (known as pass throughs). Depending on the landlord, rents can be quoted several ways. Make certain you understand which way it is being quoted to you and make sure you are comparing apples to apples.
Will electric utilities be individually metered? That's the fairest for you because you will be charged only for what you use. Is there a special charge for heat and electricity before or after normal business hours? Is heating and air conditioning available during non-business hours?
Does the building provide a cleaning service? What exactly does it include? At what frequencynightly, weekly?
Are windows washed? How often? Both outside and inside?
Who changes light bulbs? Who makes minor repairs? If minor repairs are made by the landlord, what's covered?
Does the building maintain the heating and air conditioning systems? Is maintenance provided without cost?
Is there a full-time maintenance staff available at the building, or is it your responsibility to have a maintenance contract? What's the building staff's response time? (Hint: Ask other tenants.)
What kind of decorating or build-out will be provided? For example, this might include sound proofing, reconfiguring office space, painting, papering and installation or cleaning of carpet.
Who owns the physical fixtures such as bookcases or lighting on the walls or ceiling once they are installed? Often, ownership goes to the landlord as soon as they are installed regardless of who purchased them.
NEGOTIATING THE LEASE AGREEMENT
Once you've shopped for space, compared costs and benefits of various properties and made an initial choice, now is the time to negotiate a lease. Again, there are questions you should ask:
For how many years do you want the lease to run? You decide what's best for you. Locking in a rate might seem smart, but having a long lease might limit or hamstring you later. To give you future flexibility, you might want to negotiate a cancellation option.
Getting the option to enlarge or decrease your space might have great value to you. The right of first refusal on adjacent space might be a big plus, also. Can the landlord relocate you at his or her discretion? If so, the landlord should pay your relocation expenses.
Does the building have an attorney on retainer to protest real estate tax increases? The answer you'll want to hear is, Yes.
Is the landlord willing to negotiate a cap on operating expenses?
What options will be available as renewal options?
Review the answers and weigh the costs and benefits of various lease alterations. You've done your homework, you were prepared for shopping, you asked the right questions in order to evaluate properties and negotiate a lease. You've gained the skills to select small office space like a pro.
Wendy Habisohn is director of operations for Joseph Real Estate Services, Ltd. Northbrook, IL, (847) 564-1600, which specializes in developing and managing single-story office and warehouse buildings in the northern and northwestern suburbs of Chicago, IL.