Smart Office Leasing Strategies: Capitalizing on Today's Real Estate Market

As the lease of your office space comes closer to expiring, you'll be faced with the important decision: Should I renew the office lease or relocate operations when the lease expires? The answer just isn't that simple. In today's market, there's a myriad of factors to consider when deciding to renew or relocate. The collision of commercial real estate market conditions, economic changes, generational shifts in the workforce and increased technology are causing businesses to rethink their options and consider alternatives that may not have been quite so attractive in the past.

Many regions of the country are currently facing a vast surplus of office space creating a highly favorable buyers market for those considering an office move. For others, the substantial financial investment put into their current space, poor timing or the sheer hassle of moving may lean them more toward staying put and opting instead to renovate. Either way, there are a few factors you may want to consider and, more importantly, a few land mines you'll want to sidestep along the way.

Assess your Present and Future Needs:
For starters, begin with a solid strategic plan to determine where you anticipate your company will be within five to ten years. In essence, companies should conduct a total assessment of their current and future needs. A few questions you need to ask yourself are: Does your office space effectively support your operation? What is the expected growth of your organization? What deliverables might you produce in the future that will affect your need for space? Does the space support your company's infrastructure technologically and how expensive and/or disruptive would it be to upgrade the technology to meet your company's needs? Will more employees be working remotely in the future? What does your current space say about your organization's image - is this the image you want to convey? These questions, among others, will help guide your decision. After all, your business is on a continual path of evolution - it's the only true certainty and harnessing those changes to achieve enhanced results is what will drive success.

Take Advantage of Today's Real Estate Market:
Negotiation leverage between landlords and tenants has shifted tremendously throughout the last several decades; however, it is now a highly favorable market for businesses considering relocation. A surplus of office vacancies has paved the way for tenants to secure great lease terms and let's face it, due to the fierce competition in the marketplace, some landlords are offering financial incentives that are just plain hard to pass up. It's now possible for companies to get into a higher-grade office building in a better location at the same rental rate, or in some cases, an even a lower rate than their current building. However, change is in the air.

Recent studies have reported a slow increase in rental rates. For this reason, many tenants are doing their best to lock in rental rates for as long a term as possible. Conversely, landlords are aiming for shorter three-year leases so they can take advantage of better rental rates in the future.

For many companies, the motivation to relocate can be broad and varied ranging from the prospect of future growth, an outdated or inefficient current office space, an obsolete technology infrastructure, the desire to enhance their branding and image through a new, upgraded space or the sheer desire to reduce expenses. Regardless of the reason, starting fresh with a clean palette is a golden opportunity for companies to make smart design decisions that support their business goals in order to create a more effective and efficient workplace. However, don't overlook a few important factors.

It's important to remember that you can't compare apples to apples - meaning, you can't compare rental rates by sheer square footage. When comparing the rent of your current location versus the rent of a new location, keep in mind that a space designed specifically to suit your business needs might prove far more efficient and require less square footage. Therefore, you may end up paying less rent in a new location and have a far more efficient space as well.

When looking for space, do your research and analyze the trends to determine how efficient companies are utilizing space, not just on a macro level (staff to square footage ratios, location, etc.), but also take into consideration how they put their real estate assets to work. Infrastructure, spatial/adjacencies, technology, amenities, and client facilities are important factors that can support your firm's goals.

A clear understanding of your specific business needs will help narrow the field of office space options and ultimately determine your direction. The selection of available office space can be daunting - everything from "raw" unimproved space that has never been leased to a second or third generation space that requires enhancements and reconfigurations - each with its own benefits depending on your specific business goals. Keep in mind that new furniture, technology enhancements, upgraded lighting and telephone systems can add up fast. Even with a tenant-improvement allowance from the landlord, the expense can be significant.

Additional expenses that shouldn't be overlooked are moving expenses and variances in the common area maintenance and parking compared to your current location.

Renovation - An Appealing Alternative:
While relocating has its share of benefits - especially in this economic climate - it's not for everyone. Many companies are completely content staying put choosing instead to renew their lease encouraged by a few landlord incentives designed to retain current tenants. In fact, it's not uncommon to have a tenant begin the office search process simply to prompt the landlord into offering attractive retention incentives.

Additionally, because the leverage lies so heavily on the tenant's side, there are companies that are re-negotiating leases far ahead of the lease expiration in the hopes of reducing rental rates substantially. All bets are off as tenants take full advantage of the current market.

With relocation such an attractive alternative, why would a tent opt to stay? If the current location of your office suits your business needs and your employees, the decision to stay might be very simple. Proximity to clients, vendors, public transportation and amenities all play an important role in a company's ability to service their clients effectively. And, some companies have such a significant financial and brand investment packed into their current space that relocating simply isn't an option.

While there's a big difference between an office renovation and simple office redecorating, most company executives find that even the simplest improvements can rejuvenate the entire workplace culture. A fresh coat of paint, new carpeting, improved lighting, new furniture or a technology upgrade may be just enough to boost employee morale and bring your space into present-day mode.

It's important to note that remodeling doesn't come without its share of risks. Depending on the renovation, a remodel can cost almost as much as it does to relocate. Plus, large renovations can displace workers and disrupt business for months unless adequate "swing space" is available for use on a temporary basis. In the current market, many landlords are so eager to retain tenants that they are willing to provide this swing space as part of the lease deal.

Leveraging the Space to Strengthen your Company's Culture:
Whether you choose to renovate or relocate, it's important to create a space that's flexible to accommodate future change and the natural evolution of your company.

Depending on the type of business and the generational make-up of your workforce, rethinking your work space to accommodate more fluid, shared and cluster workspaces with an infusion of technology may be the ticket to create an environment the supports the way your employees actually work. After all, workers are spending far less time at their desks and more time on the road, in meetings and working remotely from home. Enhanced technology has nearly eradicated the absolute need for face-to-face communication and a large, posh office is no longer a necessity. Let's face it, how your office functioned ten years ago is far different from what you may require today to maximize efficiency and productivity.

Designing a new space built around corporate titles or departments may work well for the short-term, but it certainly doesn't allow a lot of room for change down the road. Multi-functional space along with collaborative touch-down spaces and gathering places provide a broader platform to accommodate future reconfigurations or changes in your business structure. And, because the way we work is rapidly changing, office space must be designed with built-in flexibility to support not only today's needs, but also tomorrow's needs as well.

Technologically, it's hard to envision where we might be in the next ten years considering how far we've come just in the last few decades; however, that shouldn't prevent you from setting the foundation now and thinking creatively about your office space. When it's decision time, think smart, think broad and most importantly, think beyond today with a vision of what tomorrow will be.

Karen League is Senior Vice President/Director of Interior Design of Jova/Daniels/Busby Architects. With a solid background in design and workplace planning ranging from the creation of transformative office and education environments to the oversight of extensive rebranding efforts, Karen's design leadership, vast workplace experience, and award-winning style provide Jova/Daniels/Busby clients broader, more comprehensive design services.

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