Last Updated February 23, 2017
Economics is obviously a primary factor in selecting office space, but a tenant’s cost of occupancy is made up a numerous factors beyond the rental rate. In addition, the features of a building and the quality of Landlord services are important considerations in property selection. Many tenants and their brokers fail to investigate a buildings’ full set of possibilities and drawbacks before making a building selection. These are some often-overlooked considerations that can make a difference in your occupancy of a particular property.
A particular property might offer a slightly lower lease rate, but when comparing a tenant’s total cost of occupancy on an “apples to apples” might not be the most economical deal due to the space efficiency.
For example, the competitor may offer a 10,000-square-foot space with a 20 percent load factor, meaning that one-fifth of the leased space on which the tenant pays rent is not usable for business purposes—it’s made up of elevator lobbies, hallways and restrooms.
The landlord’s property may offer 10,000 square feet with a 12 percent load. Even if the competitor’s rent is cheaper, the landlord’s building may be a better deal because the tenant can fit 42 desks in that space, but only 35 desks into the office with the higher load factor.
When comparing alternatives, occupancy cost projections both on an absolute and present value basis should be analyzed in terms of usable square feet to account for differences in common area factors and space efficiency.
The true cost of a tenant’s energy, taxes, janitorial, maintenance and other pass-through costs add up and contribute significantly to the total cost of occupancy. Your broker should have knowledge of comparable buildings’ typical charges. This is an opportunity to capitalize on building efficiency improvements such as the HVAC system or energy-saving switches, which ultimately save tenants money.
Infrastructure can have a big impact on the feasibility of certain uses, and some tenants find out too late that they are pursuing space options that do not fully accommodate their needs.
For example, technology users with major power and cooling needs might not be right for a building that lacks the HVAC muscle. In another case, a mobile workforce that needs substantial guaranteed parking might not be the right fit in a downtown building with lower parking ratios or too many monthly parking contracts.
Companies with I.T. and phone providers that require a redundant fiber loop will also be the wrong fit for a building that lacks this system. Also, some companies need the ability to install a back-up generator for critical 24/7 operations in case of power outages and a particular building may not have the ability to provide that capability.
Property managers are tenants’ primary point of contact with the building owner. Smart tenants will speak with other building tenants before signing to find out about the manager’s responsiveness and the quality of the management, engineering, security and janitorial services.
So before making a building selection, consider the performance of the property manager, their level of involvement with the property and their face time with existing tenants. Based on regular tenant surveys, Colliers has found the No.1 factor that determines tenant satisfaction is the quantity of contact tenants have with the property manager.
Find out the frequency of occurrence of the most common tenant complaints:
Sometimes the wrong building options are presented to tenants simply because those buildings existing tenants were not taken into account. Some tenants may have the potential of clashing with your company or a major competitor may be located at the building.
Sometimes an attractive tenant mix can position a building as “the place to be” for some companies that will actually support higher economics. The image of the building and its tenants can play a role in developing your brand, as well as recruiting and retaining employees. Perhaps a key customer or complimentary business is located in the property.
Sustainability is much more than a buzzword; many local governments have mandated green buildings and businesses are increasingly moving this building attribute from the “nice to have” category to the “must have” column, as an essential aspect of supporting their brands.
It’s important for your broker to be well-versed in green building terminology and practices, so that buildings under consideration can meet a tenant’s specific requirements. For example, he should understand the Leadership in Energy & Environmental Design (LEED®) Green Building Rating System™, provided by the U.S. Green Building Council and which properties in this marketplace have attained LEED ratings.
While many companies look to the bottom line cost when deciding where to locate, that is rarely their only consideration. A “cool” factor or singular benefit might be enough to sway the decision if all things are equal among various properties— but they rarely are equal. That’s why it’s critical to identify benefits and place some value on these factors.
The decision to renew a lease or relocate your office facilities absolutely requires thorough financial analysis of the anticipated lease costs within the marketplace. However just as important is a detailed evaluation of building attributes to put the whole process in context and insure you make the best real estate decision.
Senior Vice President at Colliers International, based in Houston, Texas.