FREQUENTLY ASKED QUESTIONS

When is the best time to consider my next office lease?

The ideal time to consider your office lease is betweeen 12 and 36 months before your next lease expiration...

In a rising market, time is your friend. Many owners will be open to negotiating an extension 1-3 years in advance of your office lease expiration depending on circumstances. This is mutually beneficial in the sense it gives companies the ability to negotiate before rental rates escalate further and it gives owners longer-term tenants, adding value to their buildings.

Why do I get additional operating expenses if I have a "full service" lease?

If you have a Full Service or Gross lease, as many buildings provide in the Los Angeles, your first year of term was simple. If the lease stated $3.50/foot – you paid $3.50/foot. In the following years, it becomes a bit more confusing. Below is an example of what you’re likely facing.

First Year’s Rent: $3.50/foot ($2.50/foot is base rent and $1.50/foot is operating expenses = $3.50/foot Full Service)

Year 2: Per the Lease, Base Rent increases to $2.60/foot. Operating expenses in the building increase 3% to $1.55/Foot. Your Full Service Rent is now: $4.15. The additional $0.05 is invoiced separately as a “pass-through”

Year 3: Base Rent increases to $2.70/foot. Operating expenses in the building increase another 3% to $1.60. Your Full Service Rent is now $4.30. The additional $0.10 is invoiced separately as a “pass-through”. You can imagine what those pass-through expenses look like by the end of your lease!

There are many reasons for the increases in operating expenses. The increased value of buildings increases taxes and insurance. The cost of maintenance, janitorial and other common area projects tend to increase year over year as well.

Three things to note:

What's the difference between a NNN and Full Service Lease?

A Full Service or “Gross” Lease is very simple – when you see a dollar amount, say $3.50 per foot, that price point includes ALL COSTS: your base rent, operating expenses, taxes, insurance & Janitorial. The only thing it does not include is your phone and internet or any specialty add-ons (security for example).

A NNN lease would look like this: $2.00, NNN. This means you’re paying $2.00 in base rent PLUS all operating expenses, taxes, insurance and janitorial.

There is no benefit or downside to either cost structure. However, when considering space options, it is imperative that you “gross up” all options and take into account your Full Service cost at each location.

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How much can I save by making my space more "efficient"?

It is best to break this question down by industry. For instance, if you sit in a traditional law office, most of our work has cut down the need for physical space by 30%, making the space more current, removing dead space and utilizing technology and upgraded furniture systems (goodbye library!).

Technology firms have traditionally been the most efficient users of an office, sometimes fitting an employee into an average of 100 feet per person! Not necessarily ideal, but certainly efficient. If you work with an open plan, working in the realm of 150-175 feet per person is very realistic and comfortable.

Finally, for those offices with some mix of open and private space, recreating your space to increase efficiency and function is absolutely possible. In fact, as rental rates continue to trend upward, a silver-lining is combating the increased costs with less square footage and more efficient use of their space.

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What's the difference between useable and rentable square footage?

When looking at office space, the size you’re quoted is always the rentable square footage. This is the square footage you’ll pay rent on.

The useable square footage is the actual size of the space you’ll occupy.

The difference between useable and rentable square footage is usually 10-20%. This is called the load factor. For example, if you were to lease 10,000 feet in a standard office building, the useable square footage in that suite would be closer to 8,000 feet.

So why do you pay for more than you use? The landlord charges all tenants in the building for the common areas such as the lobby, stairwells, community gyms and shared conference rooms.

Why is this important?

When considering your true size needs – having an understanding of the useable space for utilization can be just as important as the rentable square footage for budget.

What's a load factor?

The load factor is the delta between the rentable square footage the useable square footage. The load factor accounts for common areas in the building such as lobby, hallways, elevators, shared amenities and bathrooms. Efficient buildings have a smaller load factor which means that you’re paying for more useable space and less common area.

How do I get out of my current lease?

The most simple and cost effective way to get out of your lease is to find someone to backfill your space and take over rent.

You can do this through a sublease, an assignment of the lease or a lease termination. Market dynamics and preference determine the best solution.

All three of these scenarios will typically require marketing the space as available, touring prospects and negotiating terms.

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In considering my next lease, what's the best way to get input from my employees?

Employee buy-in is crucial when it comes to decisions like a new office. While having too many opinions or “cooks in the kitchen” can do more harm than good, we do recommend a list of questions to be distributed and filled out anonymously throughout the office. Having those responses analyzed by a team in charge of the real estate is an efficient way to manage the input.

A Few Examples:
• How do your employees currently work in the office?
• How could they see their work environment or set up improve?
• What aspects of the office are most important to them?
• Where does your office typically eat lunch, do they go out for coffee or enjoy green space that is within walking distance?
• Where do they currently live? What is their drive time and what impact would a move have on that commute?

Working toward getting a full grasp of your current office situation combined with consultation with a real estate team will deliver the roadmap toward an optimal solution taking your employees insights into account and leading to a successful project.

How much does it cost to move?

Here are the major factors to consider – discount any costs you don’t see your company facing:

• New Furniture: $10-$30 per foot
• Move Costs: $5 - $10 per foot
• Data/Cabling: $5 per foot
• Tenant Improvements beyond Landlord Contribution: $0 - $50 per foot

If you’re able to find a location that allows you to move in without coming out of pocket for tenant improvements & you can use much of your current furniture – much of the move cost is offset by new space concessions like free rent.

However, when analyzing a move vs. stay, these are real costs and must be considered in your financial analysis.

What's the best way to lease space if my size needs are uncertain long term?

Your two best options are either Sublease or "OVERBUY"

Sublease allows you to lease just the square footage you need right now with flexible term lengths ranging from 12 months to 60 months. Reduced rental rates that are typically 20-30%cheaper than a direct deal with the landlord. They also often include furniture and are “plug and play” and less scrutiny on company financials

Some groups have elected to take on more space than they currently need and grow into it over the course of a long-term lease. To offset costs, you can sublease a portion of the space to another company until it’s needed. It eliminates the hassle/disruption of constantly moving offices and gives you more capital from the landlord for improvements to the space to ensure the office layout/environment aligns with the company culture

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Still Have Questions?
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