You’ve been researching the market and identified several office listings that seem to be a good fit for your business, and now you must focus on securing the best possible lease arrangement. Ideally, all of the listings in your final selection are legitimately good fits for you, therefore you can hedge them against each other, which can contribute significantly to your negotiating leverage. However, if only one option is found satisfactory by the end of your proposed market research period, don’t stop looking even if you proceed with lease negotiations on the one — new offices spaces are listed every day, and it is in your best interest to keep your options open.
Key Considerations During Office Space Lease Negotiations
Hire a Broker
It is often the case that a first-time tenant approaching the negotiating table is most focused on getting the monthly rent as low as possible. While the intention is certainly understandable, it is more important to focus on the value one gets for the money. First of all, there is significant value in hiring a broker to represent your business during this process. The landlord most likely has a dedicated team for this, and so should you.
The more you know about recent, similar transactions to what you are preparing to negotiate, the better your chances of a deal that works significantly in your favor. An experienced broker that is well acquainted with the market and its peculiarities can make the difference for you.
Understand the Numbers
It is important to have a good idea of what total rent cost your budget allows. For that, in turn, it is important to understand what the rent cost would include and what variations you should account for. The simplest way to think about it is to consider an annual rent amount — which increases yearly by fixed increments and taxes — and multiply that amount by the lease term, then subtract any agreed upon tenant allowances, such as free rent and/or tenant improvements capital.
Understand Your Needs & Negotiate Accordingly
Your strategy should focus prioritizing your specific needs. The landlord will most likely enter the negotiation with a very clear objective in mind, knowing exactly what the deal value is in their best interest. But don’t let that intimidate you into selling yourself short. As your dedicated team will probably tell you, there are ways to structure the deal optimally for whatever your situation is.
- If you need to prioritize capital
In the event that your company is just starting out, you are in a position in which you need to preserve as much of the capital you raise as possible for the first few years and can expect your revenues to increase significantly down the line. In this case, you may want to propose the lowest agreeable rent for the start of the term, and negotiate annual increases that allow the landlord to recoup the allowance toward the end of the term.
- If you need to prioritize branding
If a certain aesthetic is your driving factor and/or you need to set up your space in a certain location, it is worth considering capitalizing the extra dollar per square foot on the rent and arrange a turnkey build-out. It is also important that your agreement ensures the landlord delivers the value you need, so you don’t have to come out-of-pocket for the space set-up.
- If you need to spread out your seed funding
If your venture has just been funded and you need to make the most of it until you reach the next round, consider negotiating for free rent allowances. You might even negotiate more to obtain more of it than the norm if you agree to spread them out over the lease term. In this scenario, you might find yourself a few years into the lease and still have several months of free rent remaining.