How to Rent an Office

Step by Step

Your comprehensive guide to finding and leasing the perfect office space

Identify Your Needs

Before you start your search, spend some time thinking about how you will use your office and what you will use it for. The answer to the following threshold questions will help as you consider your office needs:

Where are my customers?
Who will visit our office?
Where are my executives?
Where is my talent pool?
Do we need storage?
Conference rooms?

1A. Size KEY TERMS: USF, RSF, CAF, Circulation Factor

Your office size depends on both headcount and workstyle. Cubicles require fewer square feet than private offices. Circulation, shared space and conference rooms also impact your requirements. Here are some simple rules of thumb to determine what size office you need.

Your office setup will affect the number of square feet per person. Here are some rules of thumb for different office uses:

200

SF/person
Typical Office

200

SF/person
Medical

100

SF/person
Call Center

150

SF/person
Tech Start-up

300

SF/person
Law Office

400

SF/person
Showroom

175

SF/person
Cubicle Land

215

SF/person
Government GSA

A Word About PLANNING FOR GROWTH:

Businesses change much faster than most office leases. Rent enough space for anticipated growth through your initial Lease Term, especially if that term is relatively long. An Expansion Option also helps - provided the space and property you choose has more space nearby.

1B. Location KEY TERMS: MSA, CBD, Suburban

When choosing a location, consider your major customers, executives, employees, partners, transportation, amenities and any special needs you have.

Downtown CBD:

Many Law Firms, Government-Related, Financial.

Airport:

Import/Export, Aviation, Heavy Travel Needs.

Suburban:

General Business, Proximity to Workforce & Customers.

Adjacency Area:

Industry Concentration, like Energy or Technology.

Specialized Need:

Eg: Proximity to Port or a Specific Customer.

Once you settle on a general area of town, consider more specific issues like:

1C. Space Type KEY TERMS: Office Warehouse, Flex Space, Executive Suites

Most companies prefer traditional office space, but new businesses and individuals often choose an Executive Suite. Light industrial or fulfillment-intensive businesses may opt for flex space to best fit their needs.

Executive Suites:

Companies rent individual offices and share common spaces. Services if provided, are billed a-la-carte. Executive Suites are almost always billed on a Gross basis.

Traditional Office:

A self-contained unit for typical office needs, including work areas, reception, conference and break rooms.

Flex Space:

Part office, part warehouse, flex space is great for companies that assemble or ship products. Typically billed on a NNN basis.

1D. Property Class KEY TERMS: Class A, Class B, Class C

Property Class is like star ratings for hotels or restaurants. Class A buildings are newer and have high-end finishes and amenities, while Class C buildings meet the basic needs of a typical office user. Most tenants are in Class B buildings.

	Class A Office	Class B Office	Class C Office
Age	< 10 years	5 - 30 years	> 20 years
Materials	Marble, granite, chrome, exotic wood	Concrete, metal, applied surface, brick	Concrete, brick, wood, stucco
Amenities	Concierge, multiple dining options, 24 hour security	Day cleaner, deli, security patrol	Very limited
Cost	$$$$$	$$$	$

A Word About CLASS:

A higher class of building is not always best. Renting Class A space is like buying a Rolls Royce; great if you can afford it, but most people can't. Also note that building class refers to the property's physical attributes, but not to the way it is managed. Many B and C properties are exceptionally well run. As a tenant, your job is to select the right class, and then find the best located, priced, and managed property of that class.

1E. Summary

By the end of this process, you should be able to fill in the blanks of the following sentence:

We are looking for approximately ___ square feet of _ (type) space for up to _ employees in a Class _ building in _____ (list areas of town).

These requirements are likely to change, but a needs statement like this is a great starting place.

Understand Variables

Office rents are discussed in different ways depending on the market, type of space, and type of lease. Grasp the basics of rent up front, then adjust for local practices and terms.

2A. Lease Types KEY TERMS: Gross, Modified Gross, NNN, Triple Net

Make sure to understand exactly what is included in your rent. In a Gross or Full Service Lease, the tenant pays rent and the landlord handles everything else (similar to an “all bills paid” apartment lease). The other end of the spectrum is a Triple Net Lease or NNN Lease, where rent covers the right to use the space, and the tenant pays the cost of insurance, taxes, repairs, and utilities, either through the landlord as a separate charge, or directly to vendors.

Gross or Full-Service

Tenant pays rent; Landlord pays all expenses

Gross + Electric or Net of Electric

Tenant pays rent + electric; Landlord pays other expenses

Modified Gross

Various hybrid arrangements

NNN (Triple Net)

Tenant pays rent + all property expenses

A Word About EXPENSES

Usually Lease Type deals with the mechanics of paying expenses and arranging services, but even in a Gross Lease the tenant usually bears the risk of expenses increasing. A different set of lease provisions, known as Expense Pass-Throughs or Escalations, addresses the risk of increased expenses to the Tenant.

2B. Square Footage KEY TERMS: USF, RSF, CAF, Common Area Factor

USF: Usable Square Feet in your office

RSF: USF + CAF = Rentable Square Feet

Office rent is typically quoted as a monthly or annual cost per rentable square foot. Executive Suites are typically quoted as a total cost per month rent basis without reference to square footage.

A Word About RENTABLE SQUARE FOOTAGE:

All square feet are not the same; it is ok to pay more per square foot for an efficiently designed space that meets your needs than for one that leaves wasted or underutilized space. Also, remember to adjust for different Common Area Factors between properties.

2C. Understand Rent

Office rent is typically quoted as a monthly or annual cost per rentable square foot. Executive Suites are typically quoted as a total cost per month rent basis without reference to square footage.

A Word About COST PER SQUARE FOOT:

Start Your Search

3A. Understand Roles

Many small and medium sized tenants deal directly with the landlord, reducing costs by cutting out middle men. Tenants can also choose to hire a Tenant Rep broker to help find space, and Landlords typically have a Landlord Rep of their own to handle leasing. Referral Services market heavily where tenants look for space, then sell the leads to other brokers.

A Word About TENANT REP BROKERS:

Tenant Rep Brokers often tell their clients that "the Landlord pays" and that "there is no charge for our services." Although the Tenant does not write a commission check, the money clearly comes from somewhere. Brokers make up to 5% of the total rent over the entire lease. Paying this fee makes a Landlord less likely to spend on improvements, grant Concessions, or lower rate or deposit, and Landlords are more sensitive to a Tenant's credit when they have to pay commission up front.

3B. Conduct a Search

Looking for office space used to be like planning a vacation, except you would call a broker instead of a travel agent. These days, there are many self-service online options to find an office. Online searching is less expensive than using a broker and more efficient than driving around town, although many still prefer these approaches.

A Word About ONLINE LISTINGS:

The internet is a great tool for disintermediation and increased efficiency, but in commercial real estate it can also contribute to the problem. Watch out for Referral Services as they increase costs without adding significant value. Look for listings that put you in direct contact with a Landlord or Landlord Rep.

3C. Tour Spaces

Time spent searching for office space is time away from your core business. Compress the process by grouping tours into a defined timeframe, using a standardized tour form, and comparing the spaces you tour against your defined needs.

Questions About: The Property

When was it built?
Are there shared conference facilities?
How much parking is available?
What are access hours?

Questions About: The Suite

How is temperature controlled?
Are expansion spacing options available?
What is the Common Area Factor?
Is there wasted space?

Questions About: The Property

How are maintenance requests handled?
What is the late fee policy?
What is Landlord’s financial condition?
Who manages the property?

When touring spaces:

Define your needs in advance.
Skip properties that just don’t work.
Have a standard set of questions.
Invite required approvers to tour.
Get floor plans.
Speed counts; don’t drag it out.

Negotiate a Lease

Commercial leases can have hundreds of terms and conditions. While all clauses are important, the biggest items are Rent and Term (followed by Expenses, Improvements, Options, and other key provisions that are important to understand). It is easy to get bogged down in the lease process, but with some foresight and understanding you can move quickly and get back to business.

4A. Process Overview KEY TERMS: Rent, Term, Deposit, Concessions

This section provides an outline of the steps involved in negotiating an office lease. In practice, renting office space is not such a linear experience, so expect to skip steps or take them out of order.

Discuss Basic Terms

Identify key lease terms such as Rent, Term, Options, TI Allowance.

Determine Layout Needs

Determine what changes, if any, the space requires to meet your needs.

Pre-Construction (if needed)

Work with architect, designer, and contractor to estimate or bid construction work.

Letter of Intent (optional)

Optional non-binding letter describing anticipated lease terms.

Legal (optional)

Work with attorney(s) to negotiate your lease, especially for long/complex leases.

Finalize Terms & Execute Lease

Finalize all remaining terms, and execute lease.

Construction (if needed)

Contractors conduct work according to lease terms.

Acceptance of Premises

Tenant inspects completed work, accepts premises, and begins any Tenant work.

Commencement

Lease formally begins; rent typically starts upon commencement.

Move-In

Now the real work begins...

A Word about the Leasing Timeline:

Larger companies typically have time for a lengthy leasing process. They have existing space, plan ahead, and rarely have to leave quickly. Smaller and new businesses often have to be nimble, move faster, and adjust to changing conditions. The "time to lease" can be reduced by finding move-in ready spaces and working with a landlord's standard lease document.

4B. Key Provisions KEY TERMS: Rent, Term, Options, Security Deposit

The most basic lease clauses are Rent and Term – how much you will pay and for how long. By this point you should understand the different styles of Rent (Gross, Gross + Electric, Modified Gross, Triple Net Lease) and be comfortable discussing Rent on a monthly or annual per square foot basis.

Tenants may be able to negotiate various Concessions, such as Abated Rent (“Free Rent”), Tenant Improvements, reduced or waived Security Deposits. The ability to get these Concessions depends on Landlord’s situation, market conditions, building occupancy, and other factors that may be beyond a Tenant’s control.

A Word about TERM:

Landlords like longer term leases. If a Landlord pays for Tenant Improvements, they want a longer term to recoup their investment. Also, banks and buyers assign more value to longer leases, making Landlords like them even more. Brokers also prefer longer terms as commissions are based on the entire lease term. All of this leads to pressure on Tenants to sign longer leases. Tenants, however, often prefer shorter term leases as they provide more flexibility and require less financial commitment. These Tenants can increase bargaining power by choosing spaces that do not need costly improvements, and by leasing without a Broker. In other cases, a Tenant may want a longer lease to lock in a low rate or provide certainty for the future.

4C. Expenses & Escalations KEY TERMS: CAM, Pass Through, Base Year, CPI

The treatment of expenses is an important part of any lease, so it helps to understand the underlying dynamics and terminology.

Base Rent in a NNN lease never includes expenses. Tenants pay them, in addition to Base Rent, from the outset.

Expense risk keeps Landlords awake at night. If income (rent) is fixed and expenses increase, profits decline. So, Landlords seek to shift expense risk to Tenants. One way is a NNN Lease, where Tenants pay all expenses and bear all the risk. This works best where a Tenant has actual control over expenses, as in a single-tenant building or Flex Space with no Common Area. But in a multi-tenant property, where Tenants don't really control expenses, a NNN Lease does not make as much sense.

In a Gross Lease with Pass-Throughs, Base Rent in year 1 includes expenses; future years' increases are billed separately.

Multi-tenant Landlords have developed other ways to shift some or all expense risk to their Tenants. Some leases (such as Gross + Electric or Modified Gross) shift only certain expense categories to the Tenant. Another approach is to pass through only the increase in expenses above their level in the year the lease was signed (the Base Year). This is called a Pass Through Escalation.

A Word about BILLING ESCALATIONS:

Landlords bill escalations by estimating what the expenses will be in an upcoming year, and charging 1/12th of that estimate each month. After year-end, they reconcile actual expenses with the estimate and charge (or refund) a true-up amount.

So what’s the upshot of all this for a Tenant? Generally it is best to i) limit or cap your exposure to expense increases, ii) make sure there is an incentive for Landlord to spend wisely, and iii) use objective, easily definable measures to determine escalations.

4D. Improvements KEY TERMS: TI, Tenant Improvements, Work Letter

Tenant Improvements (or TIs) are improvements inside an office space, typically to change layout or upgrade finishes like paint, flooring, and trim. TIs can also include signage, data connectivity and wiring, and other custom elements.

Build-out Terminology:

Offices begin as Shell Space, and Improvements are added in various levels of complexity, cost, and uniqueness.

Shell Space:

Totally Unfinished.

Warm Shell:

HVAC & Lights.

Standard Office:

Basic Improvements.

Custom Finishes:

Special for a Tenant.

For spaces needing work, Landlords may provide either a Tenant Improvement Allowance or a Tenant Improvement Credit. These represent fixed dollar amounts that Tenant can “spend” on improvements. Landlords usually manage the improvement process, but sometimes Tenants actually do or coordinate the work. If so, Landlords will approve contractors and plans, and review work and invoices before issuing a payment or credit. The work to be done is described in a lease addendum called a Work Letter. In some cases the Tenant pays for the work itself, especially if the work is unnecessary or unique, either up-front or spread out (Amortized) over the term of the lease.

A Word about TI ALLOWANCES:

When negotiating TI Allowance, a Landlord thinks:

How many years’ of profit does this TI Allowance represent?
Would I have to do this work for any tenant, or just this one?
How good is this Tenant’s credit?
How much more rent can I get if I do this work?

Tenants with good credit and long-term leases, paying high rents and asking for generic improvements will get the best deals. As a Tenant, the less you fit this profile the harder it becomes to get improvement dollars.

4E. Options KEY TERMS: Expansion Option, Renewal Option

Options are an important consideration for companies with uncertain business requirements. Negotiating options gives a tenant flexibility with little current cost.

EXPANSION OPTION

allows a Tenant to ADD SPACE

RENEWAL OPTION

allows a Tenant to EXTEND A LEASE

Options typically require the Tenant to exercise the option with an advance Notice Period, often several months or more. Expansion Options affect the amount of space rented, while Renewal Options relate to the Lease Term. A related concept are First Rights. A Right of First Offer gives a Tenant preference to negotiate for additional or adjacent space, while a Right of First Refusal allows the Tenant an opportunity to take a specific deal that Landlord is offering to someone else.

A Word about OPTIONS:

The easiest option for a Landlord to provide is a simple Renewal Option. Expansion Options can be challenging for Landlords in multi-tenant properties because managing multiple rights to a given space gets complicated.

A Word about OPTION RATES:

Renewal and Expansion Options come in two basic variations when it comes to rent. Some decide at the time the Lease is signed what the expansion or renewal rate will be (often adjusted for CPI). Others indicate that a Market Rate will be determined at the time the Option is exercised. Which version is best is a matter of personal choice and varies among Tenants and Landlords.

Ready to Find Your Perfect Office Space?

Now that you understand the process, let's help you find the ideal office for your business.