The Future Is Now
It’s crucial to prepare for tomorrow. When looking at office space it’s not just about what you need now but it’s about the future. It’s important for your business to ask several questions: What are you planning for your company’s growth? What does the headcount look like in 2 years, 5 years? What are some things that could change in your business in the next 12, 24, 36 months that may change your space requirements? Are we taking enough space to consider future growth?
There are lots of solutions for the answers that come from this.
1. TAKE MORE SPACE THAN YOU NEED
While much depends on your projected growth there would be nothing worse than taking space to move-in day one and feel like you are packed like sardines. While it’s crucial to be efficient with your real estate, which really means be careful not to waste money, it’s important to take some extra space. And, that can be somewhat functional space that can be used differently at the onset and can be reconfigured when need be. Is there a number? It varies because it is company and industry-specific. A good rule of thumb is 10–15% if you have no major growth plans during the term.
2. SUBLEASE OUT THE EXTRA SPACE THAT YOU MAY NEED IN THE FUTURE
If you take more space than you will eventually need, you can build out the whole space and then sublease a portion of it out. You’ll often see when a larger tenant takes space and wire, furnish, and construct it then separately demise a portion of a floor or even sometimes a full floor and the sublease it out for a shorter-term, like 1–5 years. It enables you to offset your real estate costs while enabling you to control your real estate footprint without being subject to availability at a later date, which would be difficult to predict. Nothing worse than not being able to grow because you don’t have the room. Or having to relocate for 10% growth, as an example.
3. ASK FOR THE RIGHT TO DESK SHARE
While you wait for your business to grow and to offset real estate expenses, make sure to negotiate desk sharing rights. It enables you to have affiliated companies use some of your space without needing the approval of the landlord which is required when subleasing and we know from my other blog, it can take a long time and doesn’t always result in a sub-tenant
4. NEGOTIATE APPROPRIATE SUBLEASING RIGHTS
Even though we have addressed this in other blogs its crucial to stress this point. Negotiating subleasing rights is crucial to flexibility. First, you need to make sure you have the right to sublease your space. Then you need to have the right to hire your own representation to sublease your space. Don’t agree to leave it to the landlord’s agent. If they have vacant space, are they more motivated to sublease your space or lease their own space? Exactly! Their space. And finally, you need to negotiate a shorter period of landlord’s consent (ideally 30 days). If it’s any longer, it’s likely a tenant who needs space immediately won’t agree to sublease your space for fear that the approval period may be some drawn out that they may be left in a pickle if by some chance consent is not received.
5. ASK FOR THE RIGHT OF FIRST OFFER
Sometimes called a ROFO, it’s a negotiated term that offers the opportunity to grow. It obligates the landlord to give you the first chance to lease additional space. You’ll have a clearly defined period to make an offer before it expires. The landlord has the right to say yay or nay. If they say nay, it can be leased to whomever without any restrictions.
6. ASK FOR THE RIGHT OF FIRST REFUSAL
Sometimes called a ROFR is also a term that helps a tenant who may be growing in the future. This is more favorable to the tenant and more difficult to achieve in a negotiation. It obligates the landlord to give you a chance to match an offer that they have received. So it’s a great protection and defensive play to allow you to consider the other space that you have specifically identified as interesting to you before the landlord leases it to someone else.
7. THINK ABOUT THE TENANTS ON THE FLOORS ABOVE, BELOW AND NEXT TO
Just like you are thinking about potential growth, so are other companies. Look at the other tenants around you, whether that be on the same floor, above, or below you. Find out when their leases expire and ask if they have a ROFO or ROFR on your space. It’s best to know all this information upfront.
8. ASK FOR A RENEWAL OPTION
Maybe you plan to say the exact same size and you want to minimize potential business disruptions. Maybe you have put a lot of money into your space and you want to protect that investment or maybe there is a large tenant in the building who will be acquiring more space in the future. It doesn’t cost you anything to ask for the right to renew. It’s a very tenant-friendly right but depending on your business and the landlord’s situation there’s the chance you could achieve this in your negotiations.
Your real estate advisor’s job is to expect the unexpected and to protect you for the things that you may not be thinking about. I am a firm believer that if you don’t ask you don’t get and these are 8 things you should be thinking about and negotiating as you think about your next space.
