Why the Amount of Office Space You Lease is Just as Important as the Cost
Originally posted on https://blog.tenavox.com/2018/07/getting-the-right-amount-of-office-space
Without fail, the number one thing we encounter at Tenavox when we get the opportunity to meet with tenants are these questions around the same theme:
- “How much should I pay?”
- “Is it Gross or NNN? I heard expenses are more!”
- “Why do I have to pay for parking?”
- “What’s with this reconciliation for expenses, I have to pay more???”
- “Is this rent fair?”
Notice the theme? RENT. We sigh, then we smile because we get to help these tenants understand the relationship between the square footage you lease and the ultimate rent you will pay.
Key Principle: The square footage you lease has just as much of an impact in your office as the rent your business pays.
We have some super smart users—I mean geniuses. These businesses know how to model incredible things; from scenarios involving millions of dollars to all sorts of acronyms that make our ears bleed. So, it’s always a bit surprising when these super smart people seem so laser-focused on rent (and sometimes concessions) instead of where the first focus of their office lease should be—on the right size!
Size, not rent, is the ultimate predictor of how successful your lease will be. If you overpay by $1/per square foot/year or don’t get that extra month of free rent , it’s not likely the difference between your business making a location successful. However, lease an extra 500-1000 S.F. and the mistake adds up in severely compounding fashion. Let me explain using a real experience we recently had.
The story of office tenant Larry:
Larry told us he needed 5,000 S.F. He breezed right over the square footage part, merely mentioning it in passing, but told us he can’t pay a dime over $18,000 a month. That’s his budget and that’s that. Some simple math tells us that means he needs to average less than $43.20 Per Square Foot (PSF)/YR gross to make the numbers work (Annual Rent Obligations divided by square footage). That rate seems in line with the areas Larry has selected, it seems he has done some good research—on price.
Larry gives us a soliloquy about why this area makes the most sense for him and his employees, he knows why the budget needs to be where it is, Larry even knows what desk chair he wants. But he is dumbfounded when we ask him a simple question.
—“How many people do you have?”
—“Well, I don’t know, I think roughly 18-20.Why do you ask?”
—“Well, Larry, we just wondered how you came up with the need for 5,000 S.F.”
Larry’s answer floored us. “It’s what I think we can afford.”
Larry had estimated EVERYTHING according to budget and location but had not considered the human element in the actual physical office space. For example, how it broke down, who would be where, who needed an office or a desk.
Larry had used our platform to select places within his budget in Houston. He had pegged the Galleria as his choice, and was proud of it! But we knew he needed to use one more resource on our website, so we pointed him to the Tenavox Education Center which led him to our space estimator tool.
Initially unsure, he completed his space estimator analysis. Then, he exclaimed, “Guys, I only need 4,200 square feet!”
His employee worksheet looked like this:
|Employee Worksheet||Office Needs|
|Junior Executives||6||Junior or Expansion|
|Sales||2||Multiple to an Office|
|Support||2||Multiple to an Office|
|Misc||0||Technical, consultant, etc.|
And his calculations looked like this. He had not previously thought about a hybrid floor plan of open and traditional space, allowing for less circulation needs.
|QUANTITY||SIZE (ft)||USABLE SQUARE FEET||TOTAL USABLE SQUARE FOOTAGE|
|Multiple People to an Office (3)||0||15||x||20||300||0|
|Expansion Office (s)||1||10||x||10||100||100|
|Training Areas (Divisible in some cases) (12 -20)||0||25||x||25||625||0|
|Large Conference Room (12 – 15)||1||15||x||25||375||375|
|Collaborative Area (4-5 People)||1||10||x||12||120||120|
|Custom Training Room||0||x||0||0||0|
|Large Workstation (10×10)||3||10||x||10||100||300|
|Medium Workstation (8×8)||3||8||x||8||64||192|
|Kitchen w/Sink (No Seating)||1||10||x||12||120||120|
|Coffee Bar w/ Sink||1||3||x||7||21||21|
|Rolling File Room||0||25||x||25||625||0|
|Admin. Mail Storage Area||0||10||x||15||150||0|
|Server Telco Closet||0||10||x||20||200||0|
|Circulation varies by plan type (open vs traditional)||30% circulation||4,144|
|15% Circulation (Open)||3,666|
|Larry’s Ultimate Needs||15% Add-On||4,216|
Note: Add-On refers to the Common Area Factor in an office building, the difference between Useable and Rentable S.F. Tenants are charged on the rentable. This is key, it’s what you’re paying for restrooms, lobbies and elevators For more tips Visit our Education Center.
The difference of almost 800 S.F. from Larry’s original calculation of his needs equated to over $172,000 over the life of the five-year lease he was considering. Now he was floored!
We ended up recommending to Larry that he needed 300 more S.F. to have some room to expand over his time and helped him work to negotiate a “right of first offer” lease option on the space next to him, allowing him the comfort of knowing that if the space became available his business would get first crack at expanding into it.
Options and planning can be powerful! And just remember, The square footage you lease has just as much of an impact in your office as the rent your business pays.
It’s our mission.
Learn more about Tenavox and our platform and stay tuned for more information, tips and data on how we’re changing the ways tenants make lease decisions.
Our platform, team, tools and information we have assembled can allow you to make the best lease decisions possible. Use our space estimator to help you plan your next space. Use our education center to learn about leveraging options to give yourself and your business flexibility. Most importantly, use us!
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