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The “Scary Times” Office Space Tenant Guide

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We have just been hit by an economic crisis the likes of which has not been seen since the great depression.  These are “Scary Times” to say the least. The decisions you make within the next several weeks could have a significant impact on the survival of your business.

OfficeFinder.com’s specialty is helping small and medium size businesses find and negotiate for office space throughout the US, Canada as well as internationally. We thought it may be useful to provide an overview of the options your company may have in dealing with their office space during these “Scary Times.”

We queried our network of over 700 local member agents who specialize in office properties to come up with a list of suggestions that may be useful to you. We only chose the most frequent comments and those that we thought would be most useful.

While it might sound a bit self serving, the one suggestion that came forward most frequently was work with an office Tenant representative with whom you can consult on action available to your specific situation. It usually won’t cost you anything to have them take a look at your situation to determine what course of action would be best for you to take. In other words, you have nothing to lose and everything to gain.

Our local Philadelphia rep said it well. “In these times of uncertainty, we can’t overstress the importance of using a tenant rep to re-negotiate early stay-put renewals on more beneficial terms, which may or may not include space give-backs, reduced rents, abatements, etc.   Most office Tenants tend to think Tenant reps only help them to find new space, and forget that they can also serve to leverage their existing Landlord to get competitive terms, even if the current lease expiration is years away.  These days more than ever, a Landlord would rather have a paying Tenant rather than an empty space from a bankrupt Tenant. “

Remember that this is a “Scary Time” for Landlords as well as Tenants. With the economy slowing and trouble in the financial industry, vacancy rates are expected to be going up.  Tenant activity in general is decreasing.  What this means is Landlords will become more flexible as the office market transition to one in which is more Tenant favored.

In San Francisco our rep tells us that following the dot com blow up, he assisted many of his clients with a “blend and extend” scenario with their Landlords, allowing the Tenant to lower their rent and extend the term.  Many Landlords were willing to work with their Tenants by giving some rent relief on the front end that would be made up on the back end when the economy would hopefully be in better shape and provided them with a longer lease.  He agrees that “the difficulties each company faces may be unique and different from the next company which is why they need an advisor with experience.”

According to our Minneapolis rep, “I have been asked to meet with Landlords by my clients to renegotiate their leases.  I have negotiated buyouts, space downsizing and forbearance of rent agreements so Tenants can have some breathing room and stay in business.  It's not the most pleasant process, but if I can keep a business from closing their doors or doing a midnight move that really makes me feel of service.”

Renegotiating your lease is clearly an option that could provide some relief. There are also a multitude of other options as well even if you already have a long term lease. These include:

Cut costs!” Advises our San Diego Rep. As an example, companies can institute behavioral methods to save utility costs.  Did you know if you just put stickers to shut off machines and lights in closets, kitchens, conference rooms, printers, unused phones, etc. that a company can save up to 30% on their utility bills? There are also surge protector power strips with occupancy sensors that will turn equipment such as monitors and printers on and off automatically.  The cost of one is around $90 which  is not much more than a good surge protector alone.

Our St. Louis rep suggests, “Revisit how space is used.”  Do executives really need the large office with room for a table, chairs, sofa, end tables, etc?  Make private offices smaller, limiting usage to essential furniture and an extra chair or two.  The saved space can be used to add additional employees and use conference rooms for multi-purposes - i.e. "war rooms,” project assembling or even share with or sublease to other businesses.  One caution, be careful of exceeding the building's parking ratio, in the event there are fines in the lease. Our Orland rep adds, “You could also rent out extra space in vacant offices. If you are in a multi-tenant building, try canvassing to see if any tenant in the building needs more space.”

From our Santa Rosa, CA rep: “It might be a good time to look into right sizing by taking a hard look at how you are using your space.” Very often we are able to find more suitable space for our clients, saving them a significant amount in rental expenses even with the expense of a buyout or sublease of their existing space.

From both Honolulu and Tacoma, WA ask “Do you have any employees that could work from their homes and be as productive or better?” Technology has come a long way in allowing employees to productively be home based. Each employee that works from home will be saving around 200 square feet of space. At $20.00 per square foot that is $4,000 per year per employee and that is just for the office space. Many employees will look at it as a reward, not to mention the time and money they will be saving from commuting.

Study your lease. Look and see if there is a way that you can terminate early.” suggests our Salt Lake City rep. This is a good time to revisit your lease agreement to see if there are any benefits you might have forgotten about.  Take a look at any cost pass through clauses, and check to make sure they are being applied correctly - especially if there is a significant amount of vacancy in your building.  Look at the numbers to make sure they are reasonable and that you are not paying for unused spaces in the building. He also suggests reviewing past year’s cost pass through charges to make sure the Landlord did not make any mistakes. Since they’re cumulative the errors can turn into big numbers.

He also suggests there are times, when you are better off to cut your losses instead of maximizing your profits; this may be one of those times.  If you have only a few years left on your lease, you may be better off taking a considerable discount and consolidating into a smaller space, rather than carrying one that is much larger than your current need.

“Many of my clients are not interested in long term commitments at this point given the overall economic instability in the global environment” says our rep from Tampa. “Many of the requests have been for short term solutions to help get them over the hump. Putting together creative solutions that meet the needs of both Landlords and Tenants is the challenge and is what we do on a day to day basis.”

It may be helpful to consider all of your options. There are quite a few depending on your needs, budget and wants.

·         Conventional office space – With challenging times also comes opportunities.  There will be some good deals on conventional office space over the next 12 months everywhere. Finding them will be the trick and where a good tenant rep is worth their weight in gold.

·         Sublease office space - While you can usually get space at a great savings, if the company you sublease from fails to pay the Landlord or goes bankrupt, you may find yourself in a bind. Make sure you know what happens in situations like these. The cost of the space will usually be discounted by 20% to 30% from conventional office space.

·         Space sharing – Make sure you do your research on the company with whom you will be sharing office space. It will be like a marriage of sorts. The cost of the space will usually be discounted by 25% to 40% from conventional office space.

·         Executive suites / serviced offices – for smaller companies of 1 – 5 people, this is a great option that is affordable.  There are generally no long term contracts, so you have lots of flexibility. Essentially these are businesses in the business of renting office space and providing administrative services. Their big selling point is that you can concentrate on your business and not worry about your office space or staff. Depending on the market, the cost will be from $650 to $1,200 per month per person including receptionist, phones, furniture and Internet access.

·         Home based office – Home based officing take a lot of self discipline.  It is best to have a space dedicated exclusively to your business. Tying a home office in with a virtual office and you can look bigger than you are and have a professional address.

·         Virtual offices – These are identity plans in which you can use the mailing address at a prestigious office location and have access to their facility on a pay as you go basis. These are very cost effective. Plans start as low as $75.00 per month.

While these are “Scary Times,” you can help mitigate your risk associated with your office space. Take advantage of the opportunity to consult with a professional Tenant representative to get a customized plan of action.  You will be glad you did.

 

 

 

 

General , Office Space

1 response to “The “Scary Times” Office Space Tenant Guide”

  1. Frank Cottle. Says:
    One of the best 'Scary Times' primers out there. Keep up the good work.