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Q & A - Commonly asked questions by Tenants

Eight Questions and Answers on Leasing Office / Warehouse / Hi-tech Space from a tenant’s point of view



Q: HOW MUCH TIME SHOULD I ALLOW TO MOVE MY OFFICE OR OFFICE / WAREHOUSE?
A: Longer than you might think. Though the length of time may vary based on the size and complexity of your requirement. You should allow a minimum of 3 to 6 months from the time you start looking until you occupy your new space.
First, check your lease to determine the date you must notify your current landlord as to whether you intend to exercise your renewal option (assuming you have one), or will be vacating your space. Working backwards from this date, which is usually nine months to a year prior to the lease expiration date, you can do your analysis well in advance. You may, therefore, need to start the process up to one year before your lease expiration date.

Let's examine some of the key steps involved.

1. DEFINE THE CRITERIA AND PARAMETERS:
The purpose of the move; how much space; quality of the building; location; rent and cost budget; image, etc.
TIME: 1st month

2. EVALUATE THE ALTERNATIVES:
Select the team: broker, space planner, attorney; learn current market conditions; evaluate survey of all logical alternatives; tour, inspect and narrow down; make preliminary layouts; select target buildings.
TIME: 1st to 2nd months

3. NEGOTIATE THE DEAL:
Get landlord's proposals, sample lease; compare financial aspects (rent, escalations, tenant im-provement packages, building efficiencies, etc.) negotiate the deal; legal review, sign lease.
TIME: 2nd and 3rd months

4. FOLLOW UP:
Finalize mechanical and engineering drawings; prepare and price architectural drawings; order telephones and furniture.
TIME: 2nd and 3rd months

5. BUILD-OUT SPACE AND MOVE IN:
TIME: 3 to 6 months

TOTAL TIME: 3 - 6 months
As a tenant, you can see, that this time consuming process could easily take up to six months or longer of your valuable time.



Q: HOW MUCH SPACE SHOULD I LEASE?
A: We recommend hiring a professional space planner to help you determine your initial and expansion space needs. Rules of thumb can be helpful but are only general guidelines. For example, while 200 square feet of office space per person may be average, some firms may require more or less space per person for their operation. Many landlords and developers provide or employ their own space planners. However, a firm which you retain can help you to objectively evaluate all prospective buildings.



Q: WHAT ABOUT MY CURRENT LEASE OBLIGATION?
A: Don’t assume that because your lease was negotiated several years ago, and your current rent is below today's market, that your landlord will readily let you off the hook. This is not so. The landlord will normally wait until a new tenant has been secured before agreeing to release you from your lease obligation.
If you have a sublease and/or first right of refusal clause, it can be a valuable asset. However, read it carefully and seek the advice of your broker and attorney to be sure of your rights, as these clauses can vary widely.



Q: HOW DO I COMPARE DIFFERENT BUILDINGS AND SPACE?
A: First, it is important to make sure that you are comparing "apples to apples". Floor sizes and configuration, building efficiencies, and tenant improvement allowances all vary from building to building. It is necessary to arrive at comparable costs per square foot. For example, one landlord may quote $20 per square foot as the value of his tenant improvement allowance, while another may quote $10 per square foot. The $20 may include $10 worth of ceiling, lighting and HVAC equipment, whereas the second landlord's $10 allowance may be above and beyond these items.

Secondly, the locations of each of the final buildings need to be compared and evaluated in relation to your original criteria (employee's commuting needs, transportation, parking, client accessibility, amenities, etc.)

Thirdly, take a close look at building quality the skin, depth of bays from glass to core, distance between columns, ceiling height, doors, lighting, office finish, etc. You may want to rank the quality of each final building on a 10 point scale.
Finally, in evaluating the economics, you must quantify all concessions: rental abatement, annual lease escalation, if any, the value of the tenant improvement package, any reduction in quoted rents, and overstandard improvement allowance. All must be accurately calculated in order to determine and compare "effective rents".



Q: HOW IMPORTANT ARE CURRENT MARKET CONDITIONS TO THE DEAL THAT WE CAN NEGOTIATE?
A: Very important. A knowledge of current market conditions is vital to your negotiating strategy. Market conditions often vary widely from city to city. For example, in some cities today, three years of free rent on a ten year lease might be negotiated, whereas in Atlanta, no more than a few months may be available.

Also, market conditions - the supply of space in relation to demand - can fluctuate sharply over a relatively brief period of time. Being aware of market conditions, deals being made and landlord's motivation can dramatically impact your bargaining power and the concessions you can realistically expect to receive.



Q: IS THE FINANCIAL ANALYSIS A PRETTY STRAIGHTFORWARD AFFAIR?
A: It is necessary to use a computer analysis to make an accurate "apples" to "apples" comparison over the term of the various lease proposals being compared. Initial rent and the final rent after ten years of cost passthroughs can vary as much as 100%. So, we need to qualify our assumption on expenses then determine the net present value for each alternative. Sometimes what looks initially like the most expensive alternative turns out to be the least costly. Also, this analysis shows which concessions to seek.



Q: WHAT SERVICES SHOULD MY BROKER PROVIDE?
A: 1. Preliminary Analysis

Review Current Situation
Lease Expiration, Renewal Notification Dates, Remaining Lease, Value, etc.

Define Requirement and Objectives
Square Footage: Short Term and Future
Location: Employees, Clients, etc.
Time-Frame: Occupancy Date, Lease Term
Financial: Preliminary Budget (Years 1, 2, 3, etc.)
Layout and Work Flow
Image: Environment, Quality, Amenities, Access, Security, Parking, etc.

Select Team
Broker Coordinates
Space Planner: Current and Future Needs
Attorney
Property Manager, Engineer-Colsuntant

Set Criteria and Strategy

2. Select Alternatives
Market Overview
Trends, Supply & Demand, Vacancy, Absorption, Rents, Recent Deals, Concession, etc. Accurate Assessment of Market Conditions

Survey
All logical alternatives in detail (brochures, maps, building specifications)

Tour and Inspect
Compare, Narrow Down
Landlord Presentations

Request Proposals (RFP)
Provide Requirements to Landlords

Landlord Proposals
Business Terms, Workletter, Sample Lease, Floor Plan

Select Finalists

Preliminary Space Plans

3. Evaluation and Comparison

Physical Analysis
Quality: Construction, Finish, Lobby, Elevators, Wet Columns
Floor Size: Configuration, Adaptability, Views
Building Efficiency: Loss Factor
Tenant Improvement Package, Workletter: Lighting, Doors, Ceiling Height, Carpet, Wallcover, etc.
Mechanical Systems: Heating and Air Conditioning, Engineering Evaluation
Ownership: Management
Amenities: Parking, Access, Identity, Public Transportation, Restaurants, Security, etc.

Financial Analysis
Rents: Quoted, Contract, Effective, Rentable Versus Usable, Escalations
Operating Expenses: Base Year Expense Stop (Includes Taxes, Utilities)
Quantify Value: Concessions, Workletter, Above Standard Improvements, Existing Lease Pickup
Options: Renewal, Expansion, First Right or Refusal, Early Termination
Subleasing Rights
Net Present Value: True Cost of Occupancy, Computerized Printout Comparing Alternatives

4. Negotiations
Preliminary Construction Cost Estimates
Negotiate Business Terms
Sign Letter of Intent
Summarizes Agreement
Finalize Space Plans
Review Lease, Negotiate Legal Terms
Final Management Approval
Lease Execution


5. Construction and Occupancy
Landlord’s Architect Prepares Working Drawings, Obtains Permits
Furniture, Telephone, Equipment Ordered
Construct Space

Space Planner Monitors Buildout
Move-in
Furniture, Equipment, Accessories
Follow-up "Punch" List
Office Opens


Tenant Representation Flow Chart
The process of procuring space is a tedious and time consuming endeavor, especially if one has a business to operate. A professional tenant representative can assure that the most suitable premises are located and the best possible transaction is brought to fruition. Below is the progression of tasks for which your real estate broker is responsible.





Q: SHOULD I LEASE MORE SPACE THAN I NEED TO ALLOW FOR FUTURE EXPANSION?
A: Depending on market conditions and the size of your requirement, it may make sense to consider this. For example, a rapidly growing firm in a tight market may wish to lease extra space as an insurance policy. However, we need to remember the old real estate adages:

1. "Real estate is an illiquid asset"; it may prove difficult to sublease your expansion space on your terms and conditions.

2. "Options are to get not to give"; it is better to provide for additional space by means of an option, or at least, a first right of refusal.

3. "Security of tenure is paramount"; be sure you negotiate an option to renew your lease on your existing space for one, or preferably two five-year renewal periods. Real estate is a "bundle of rights" and a guarantee of continuity of occupancy is a fundamental right and objective of your negotiating efforts.



Q: HOW DO I GO ABOUT SELECTING MY TEAM?
A: In addition to a lawyer to protect your legal interests and a space planner, you will want to take care in selecting your most important ally broker. Look for a broker who not only understands your needs but also has an accurate knowledge of current market conditions. These are the two essential qualifications. Whatever you do, do not walk into a landlord, without representation. Your broker is a professional in the business. Anyone can make a deal directly, but a tenant representative will help you make a deal advantageous to your best interests and realistic in relation to the current market.
 

ATLANTA'S LEADING TENANT & BUYER REPRESENTATIVES &
ATLANTA'S MOST AGGRESSIVE PROPERTY MARKETING COMPANY

See Also:Tenant Representation Process | Using a Tenant Representative | Costs of Leasing Office Space | The Leasing Process and Timing | Questions to ask Tenant Representative | Tips for Tenants | Hints for Lowering your Rent Expenses | Exclusive Representation Agreement
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