Frazier Baker and Will Barden
So your office lease is expiring and it’s time to make a decision about your space. Hopefully you are at least six to 12 months out from your expiration date as you are thinking about all of this – and if you are thinking of moving, you might want more time than that. This is a big decision, and not just because moving, if that’s a possibility for your company, is a huge ordeal. It’s a big decision because office lease expense is typically one of your larger operating expenses.
So the first decision is whether to stay or move. Not so hard, right? Just hop in your car, drive around the market, call and ask for some rental rates, maybe some floor plans. Compare what’s out there to what you have. Seems straightforward, doesn’t it? Seriously, though, this probably sounds easy only if you’ve never actually shopped for office space. Even if you aren’t planning to move, it helps to have done some homework on comparable properties in order to negotiate a lease renewal from a point of strength. Here are just a few of the things that need to be included in the research.
What submarket are you in or looking to move to? The Memphis metro area is broken into a number of office submarkets, such as Downtown, or the 385 Corridor. Rental rates vary tremendously by submarket. Location is obviously a big driver, as the highly desirable locations drive demand and higher demand increases occupancy rates, which drives rates up.
What class is the building you are in or seek to be in? The class of the building (either A, B or C) is determined by age, building condition, amenities and several other factors. Building class has a major impact on lease rates.
What are the quoted rental rates in your building versus the prospective comparable properties? Remember that to compare apples to apples, you’ll need to keep in mind the variables of submarket and building class.
What rents are your fellow tenants paying in your current building and other prospective properties? You might think that rates will be the same for tenants within the same building but there are many factors that could cause variations. Some of these are market-related, such as what the vacancy rates were when a particular tenant signed their lease. But negotiation skills also play a big part in lease rates.
Who owns your property and/or any of the other properties you might be considering? Fortunately, foreclosures are starting to decline, but it is good to know how stable the ownership of your property is and what your lease says about what happens to tenants in the event of foreclosure.
Yes – it’s just a lease renewal. But how much could you save over the course of a three- to five-year lease if you were able to negotiate a renewal that lowered your rent by 5 percent? By 10 percent?
Frazier Baker, vice president of office services, and Will Barden, vice president of office services, provide office tenant representation services for Colliers International Memphis.