The Tenant's Ultimate Guide to Rent an Office Space

The Tenant’s Ultimate Guide to Renting Office Space

Deciding to rent an office space can be an exciting and momentous step towards growing your business. But locating and leasing your ideal office space can be overwhelming, especially if embarking on the project alone. When choosing an office space to rent, you must consider several factors to ensure you’re setting your company up for success. 

Before you sign an office space lease for your business, you’ll need to select an ideal location, make sure the building is appropriate for your business, and negotiate a fair lease. We have designed this comprehensive guide to help small business owners like you avoid mistakes and choose an office space that fits your business and your clients’ needs.

Step #1: Establish Your Commercial Office Space Lease Parameters

Business Requirements

First and foremost, you must determine your business’s needs. Identifying your ideal property will help you rent an office space that helps your business thrive. You can not find and set up an ideal office space unless you know your spatial requirements for business operations. 

Spend some time thinking about your current office. What would you like to change in your new space? What would ideally remain the same? For example, if your headcount has exceeded the conference room’s capacity, the new office space lease must have a larger conference room for your employees and board members. Here are some other factors to consider:

1. What is my goal for renting office space?
2. How do we want to use our office space?
3. Who will come to our office: employees, vendors, clients, partners, etc.?
4. How do employees will work in the office? How many will telecommute?
5. Where are my customers?
6. Do we need room for storage?

By considering these questions, you can then determine which type of commercial office space you need. Furthermore, you can decide how much space you will need in your office.

Types of Commercial Office Space

There are many types of commercial properties. However, your business size, location, and the sector will determine which property type works best for you.

Office Building Classes

Not all office buildings are created equal. Before you rent an office space, consider which class best suits your business and your client base.

Class A

Class A office space is often the most elegant and desirable office location. This building typically features high-end finishes, updated technology and amenities, and incredible locations. However, before you rent an office space in a Class A building, consider the cost. A Class A office space lease will be significantly more expensive than other classes. 

If you cater to high-end clients, a Class A office space may be ideal. However, if your client base is more modest, or if you rarely see clients at your offices, you might consider another space.

Class B 

Class B offices are the “middle of the road” locations. When you rent an office space in a Class B property, you will still get some upgrades, a clean and functional space, and a decent location. In addition, a Class B office space lease will be more affordable, helping you save money and grow your business faster.

Typically, Class B properties will still provide amenities and technology necessary to do business. However, some Class B properties may be located away from the city center or need some minor renovations. 

Class C

Finally, let’s consider Class C office space. These are often the most affordable office space leases. However, they are inexpensive for a reason. Perhaps the building is in a less-than-desirable location. Maybe the space is run down and in need of repair or significant technological upgrades.

A Class C office space lease will be the most affordable. However, it’s all about optics and performance. If your business doesn’t see clients on-site or doesn’t need the most updated building technology to function well, then a Class C property may be ideal.

Other Property Types

Not all businesses need a traditional office space. If your company has a large inventory on hand or only needs a small space for a few employees, you might consider other options.

Industrial

Before you rent an office space, consider options outside the traditional office property. If your business manufactures products, holds inventory, or conducts business via e-commerce sources, you might consider an industrial office instead. 

Industrial properties often feature warehouse space, open areas for storage, and separate offices for conducting business. As the country shifts towards e-commerce, many retail companies choose to rent office space at an industrial property.

Retail

If you own a retail business, it makes sense to rent a retail office space. Many retail centers are seeing declines in occupancy, often leading to incredibly affordable leases. There are retail centers in downtown areas, suburban shopping centers, small strip malls, and even rural locations.

Mixed-Use

Finally, if your business is small enough to fit into a smaller space, consider mixed-use properties. By renting an office in a mixed-use property, you give your brand exposure to various customers all in one area.

For instance, if the property contains residential, industrial, retail, and office space all in one location, customers and clients from a wide range of backgrounds will see your business. By signing an office space lease in such a community, you increase your exposure.

The next most important factor to consider is how much space you require.

The Space Factor

Now that you’ve determined which type of location will work best for your business, it’s time to decide how much space you need.

Space needs vary greatly depending on your company, industry, and also your geographic location. However, a typical office usually plans for 200 SF/person.

Before you rent an office space, consider the following:

1. What is our company headcount?
2. Will we need cubicles, private offices, or an open floor plan?
3. Will we need storage?

While it’s generally easy to gauge the number of offices you will need for your team, keep in mind the type of work your business performs and your growth plan. Look into an expansion option in your initial commercial office space lease, especially if the lease will be long term. 

Depending on the types of activities you envision for your company, ask yourself these questions:

1. What type of office space will we need? Traditional office or flex space?
2. Will we need a reception area, conference rooms, and private offices?
3. Is there a way for us to expand in the future? What would that look like?

Location, Location, Location

Location – it’s one of the top factors when renting office space for any business. After deciding how much office space you will need for your commercial lease, you must then decide on a location. How do you know whether a site is suited for your business? Consider the following:

1. Where do my employees live? How do they get to work?
2. Where are my clients located?
3. Is this location suitable for partners and vendors?
4. Are there attractive amenities, such as restaurants and parks nearby?
5. Is the location close to major modes of transportation?

Analyze the needs of your business as well as your customers before finalizing the new office location. 

Narrow your search by keeping in mind some general rules. Most financial and accounting firms choose the Central Business District (CBD) of the city or town for their office locations. On the other hand, businesses that require air travel quite frequently choose a location near an airport. In rare cases, businesses choose an office space based on proximity to the primary buyer.

1. 1. Downtown or CBDs tend to have law firms, financial, and government-related businesses.
   2. Warehouse/Industrial, Aviation, Import/Export, and Manufacturing industry businesses are typically closer to the airport.
   3. Suburban areas attract general business, residential communities, the workforce, and customers.
   4. Specific industries such as Technology, Energy, and Healthcare are close to the city center or adjacent areas.

Nearby Attractions

Once you’ve selected a general location to rent an office space, consider nearby attractions and amenities.:

1. Are there restaurants and coffee shops where I can take clients and co-workers?
2. Can clients find our office easily?
3. Is there a place for signage?
4. Is the space close to public transportation, and does it have freeway access?

Considerations like transportation, hotels, restaurants, and other amenities will help make your business more attractive to potential clients. 

Impressions matter when it comes to commercial office space. Setting up office space isn’t only for your staff. It’s also for clients and visitors.

Building Amenities

Impressions matter when it comes to commercial office space. Setting up office space isn’t only for your staff; it’s also for clients and visitors. If you are only going to be visited by vendors and suppliers, you do not necessarily need an impressive space. However, if your clients and partners visit your office space often, it’s wise to have a more elegant and functional space.

What are the main features you want in your office? Some businesses need a beautiful reception area to seat visitors, while others require a conference room to hold meetings with clients and suppliers. You should consider an office space lease only if the property offers must-have amenities for your business.

What does an average business need in an office space?

1. Private offices for partners and proper space for adding cubicles
2. Conference Room
3. Sitting area with or without reception
4. Lunch area
5. Print and Mailroom
6. Restrooms and drinking fountains

You can add or subtract from this basic list of requirements, but this will get you started. Be sure to have a finalized list before touring properties.

Technology Considerations

In today’s digital age, technology plays a vital role in your business’s success. Therefore, consider which technology your business needs and rent an office space that meets those needs. 

Perhaps you want automated lights and HVAC systems, keyless access, upgraded security, or options for lightning-fast internet. These considerations should play a large role in your office space lease.

You can add or subtract from this basic list of requirements, but this will get you started. Be sure to have a finalized list before touring properties.

Budget Appropriately

Make sure you have an operating budget in place and account for extra expenses before starting your search for commercial office space. Your finalized budget should have sufficient funds allocated to pay for all operating costs for three months, plus a one-month advance deposit requested by most Property Managers. Be sure to account for all the operating expenses associated with moving and functioning in the new space. These costs include decorating the new space, monthly utilities, possible parking garage costs, and renovation or build-out costs

Your finalized budget should have sufficient funds allocated to pay for all operating expenses for three months, plus a one-month advance deposit requested by most Property Managers.

The Property Class (mentioned above) can help you determine how much to pay for an office space lease. Class A buildings are usually less than ten years old, have high-end finishes and amenities, and tend to be the most expensive. The Class B category contains most office leases. These buildings are typically 5-30 years old, with average finishes. Class C meets the most basic needs of an office user with minimal amenities but is typically the least expensive lease option.

One thing to note, building class refers to the actual property’s physical attributes and not the way it is managed. Many B and C class properties are expertly run and make sense for your business if the location and the price are right.

Step #2: Become Familiar with Commercial Lease Terms & Variables

Commercial Office Lease Types

It’s critical to understand the variety of commercial lease types to correctly forecast and budget your operating expenses.

With Full-Service or Gross Leases, the repairs and maintenance, property insurance, property taxes, utilities, janitorial services, and office space are included in the monthly rent. The tenant pays this cost. The property manager of the building is responsible for all included items.

In contrast, a Triple Net, or NNN, Lease only includes the office space itself. Therefore the tenant pays the monthly rent rate plus the property taxes, property insurance, and operating expenses – the three “N”s. Typically the tenant independently contracts with outside vendors for these items.

• The tenant pays the monthly base rent, property taxes, and property insurance in a Double Net or NN Lease.
• The building owner or property manager pays the operating expenses and property taxes with a Single Net on N Lease.
• The tenant is responsible for the monthly rent and property taxes. A Gross + Electric Lease means that all expenses associated with the property are included in the rent except for electricity.

Budgeting for Operational Expenses

When determining which lease structure is best for your business, keep in mind that it is important to budget for operational expenses increases over time. Operating expenses cover all aspects of leasing office space. The Property Manager will try to include as many as possible into the lease agreement.

Be prepared to negotiate these provisions in the lease and make sure the language is as detailed as possible.

A savvy tenant should look to push the Property Manager on certain expenses and negotiate them out of the lease. A couple of provisions to be aware of are:

• Property Manager cost of doing business: The tenant should not have to pay for interest on loans, bad debt, acquiring new tenants, legal fees, expenses for high-level executives, and other non-property personnel.
• Property Manager’s Risk: costs to defend or prosecute lawsuits, environmental or tax change laws, costs related to design or construction of the building.

Most Property Managers do not expect a tenant to pay these costs. However, they may still include them in an office space lease to see what can be negotiated. 

One last consideration is the right to audit the Property Manager. Property Managers don’t like to disclose financial information, but the only way to truly forecast your operating expenses is to negotiate for an audit. Negotiating operating expenses is one of the most critical steps in the leasing process with your Property Manager. Therefore, before signing an office space lease, consider all provisions and pass-throughs carefully to ensure you are getting the best deal.

Office Square Footage

When you are ready to rent an office space, it is easy to become confused with terms and abbreviations related to square footage. Let’s break it down:

• USF = Usable Square Feet
• CAM = Common Area Maintenance
• RSF = Rentable Square Feet (USF + CAF)

USF refers to usable square feet that will be exclusively used by the office tenant. CAM refers to all of the common areas in a building that are available for the nonexclusive use of tenants, such as lobbies, corridors, bathrooms, and parking lots. In other words, the RSF is the sum of usable square feet and a portion of the common area. As a tenant, you will need to keep in mind that the CAM will be added to the base USF to determine the RSF, ranging from 12%-20%.

Calculating Rent

Office rent is usually quoted as a monthly or annual cost per rentable square foot. Executive Suites typically bundle services together and are quoted as a total cost per month without reference to square footage. 

Before signing an office space lease, ensure the proposed office space will efficiently meet your needs. Make sure the office features usable space. Too often, you’ll see poorly-designed buildings that leave wasted space. Additionally, you may see build-outs from the previous tenant that underutilize the area. A tenant representation broker will be able to help you work through these issues. He or she may also suggest a space planner to help identify the best layout for your company.

Formula to Calculate Rent:

Rentable Square Footage x Annual $ per Square Feet= $ Per Year

Divided By 12= $ Per Month Divided by Rentable Square Footage=Monthly $ Per Square Feet

Step #3: Tour Commercial Office Spaces for Lease

Where to Start Your Search?

Tenant representation brokers negotiate a lease on your behalf. We will walk you through the entire leasing process from start to finish. Most importantly, we will help you rent an office space that best meets your needs.

If you are a startup or do not have a lot of capital to hire a tenant representation broker, the office space lease process can feel overwhelming. 

Two of the most popular sources for finding commercial office space online are Craigslist and LoopNet. Both of these websites provide basic details about the office space for rent and will always include contact information for the Property Manager broker. 

Once you find an office space that you want to see in person, call the Property Manager broker and schedule a tour.

Another option for finding available commercial office space for lease is by driving around the city. By now, you have likely identified a general part of town where you would like to set up your new office. Take a drive around that area and note the contact information on any building signs advertising commercial space available. Once you are back in your office, call to schedule a tour of those spaces.

Prepare a Checklist

Understanding commercial office leasing markets takes a lot of research. This can be a daunting endeavor. A tenant representation broker will present you with the market data and a list of properties for you to tour based on your predefined specifications of location, size, local attractions, and building amenities.

Ask for a Property Analysis sheet to compare each building and breakdown of associated costs related to leasing each specific space. This will be a great tool to help you find the best space that meets your criteria.

If you have decided to tour commercial office spaces for lease without a tenant representation broker, make sure you are organized before scheduling tours. Create a tour form listing all of your questions about each specific space. Additionally, include a checklist of building requirements and amenities so that you can quickly take notes during each showing. To streamline the process, be sure that all partners and decision-makers can attend the scheduled tour times. At the beginning of the tour, ask the Property Manager for a floor plan of the office space so that you have your bearings while performing the walkthrough. Do not forget to take pictures of the building and the office space to help you remember the location and layout.

Remember, if you’re looking in a popular market, chances are other companies are looking at the same commercial office space. Be efficient in your search, and make decisions quickly. Don’t drag it out. If you fail to rent an office space quickly, there’s a good chance the property will be gone, and you will have to start over.

Some of the critical questions to ask when touring office space:

• How old is the building?
• When did the last renovations take place?
• What do conference rooms look like, and are they shared between tenants?
• How many parking spots will be allocated to your company?
• Is there a janitorial service?
• Is there security, and what are the access hours for the building?
• How is the HVAC handled, and what are the expenses?
• Is there any scope for expansion in the future?
• What are the common areas, and how are they maintained?
• Who looks after complaints and requests for repairs?
• How active is the Property Manager when it comes to complaints?
• What is the policy regarding late payment of rent?
• Is the property managed professionally?

Letter of Intent (LOI)

Once you decide to rent an office space, the next step is to prepare an LOI or Letter of Intent. Now, your tenant representation broker will present the document to the Property Manager. 

An LOI sets up essential proposed terms for an office space lease, including rental rate, duration of the lease, renewal options, etc. It’s best to get most of the details worked out in the LOI. This way, once you transition to a lease agreement, there are no surprises. Therefore,  you can move quickly through the negotiation process. You can go here to see more samples and tailor a Letter of Intent for your particular situation.

Step #4: Review & Negotiate the Commercial Lease Agreement

Decide Length of Lease

Property Managers give preference to tenants who sign long term lease agreements. This is  especially true if the negotiated contract holds the Property Manager responsible for most or all of the operating expenses. Signing a longer-term lease will give you more flexibility when negotiating other clauses of the contract.

If you’re looking to negotiate concessions from the Property Manager, it would be best to sign a longer-term lease.

Once the contract is in place, it will be hard to break the lease. Therefore, make sure you have a termination option in your contract. Investors looking to buy commercial buildings are more likely to spend more money on a property when they find that most of the tenants have signed a long term lease agreement.

If you can’t sign a long term lease, just keep in mind that shorter terms usually come with higher rental rates and more expenses.

Another option to consider is signing a long-term lease with the possibility of subleasing the space. In this instance,  If you need to move out before your lease expiration, you can have another lessee take over your payments. You will be subject to the master lease terms with the Property Manager, so carefully review this part in the contract and look for increased operating costs.

Commercial Lease Clauses

You have seen the office space and are happy with everything from the location and the property’s condition to the monthly rent that will be charged. However, there are still many important details to clarify from the Property Manager before you commit and sign the commercial lease agreement. Most of these remaining items are usually covered in the form of clauses in the office space lease agreement. It is prudent to know your rights and responsibilities concerning all parts of the contract so that you can make an educated decision to rent an office space.

Repairs, Improvements, and Rent Escalation

Property Managers typically worry about their costs of repairs increasing as their profit declines. This is why Property Managers are always in favor of NNN leases where they charge a base rent plus an additional amount for upkeep and repair of the property. In cases where a Triple Net lease does not make sense, Property Managers prefer to go for a lease that transfers increases in expenses on to their tenants. This is termed as ‘Pass-Through Escalation.’

This clause can give the Property Manager an excuse to spend more rather than think of ways to save on repairs. If this is the case, one way to prevent overspending on repairs is to use an Expense Stop. Under this clause, the Property Manager is required to pay the first part of the increase in the cost of repairs, but after a certain level, the burden falls on the tenants.

If the office space needs improvement to fulfill the requirements of the tenant, Tenant Improvement Allowances are included in the lease agreement.

Tenant Improvement Allowance (TI)

This money is provided by the Property Manager to allow the tenant to carry out improvements such as changes in layout, flooring, painting, or even wiring for data connectivity. Property Managers oversee the work process, and issue payment after invoices and work done to the space have been reviewed. Property Managers tend to allow TI only in cases of tenants having good credit and those who sign long-term leases.

Tenants often choose to complete office space build-outs to suit their specific needs. If your business intends to do a build-out or other improvements, negotiating a tenant improvement allowance could be extremely beneficial. 

Options

The Options term allows tenants to negotiate a renewal or an extension of their lease term by giving advance notice to the Property Manager. Typically a Property Manager will require anywhere from 60-120 days advance written notice, but the exact specified timeframe will be stated in the lease agreement. 

There is also an expansion option that allows tenants to add extra space to their existing office, which is commonly referred to as the Right of First Offer or the Right of First Refusal.

• Renewal Option: Allows a Tenant to EXTEND a Lease
• Expansion Option: Allows a Tenant to ADD Space
• Right of First Offer: Allows Tenant to Negotiate for ADDITIONAL or ADJACENT space
• Right of First Refusal: Allow Tenant an opportunity to a SPECIFIC DEAL the Property Manager is offering someone else.

In Case of Parking

When reviewing the commercial lease agreement, it is important to define your allocated parking spaces. It is advantageous to negotiate parking spaces based on rentable square foot (ex: 4 parking spaces per 1,000 square feet of rentable area of the leased premises). That way, if you choose to expand your commercial office space, then you will automatically be entitled to more parking spaces.

The number of parking spaces negotiated in the lease agreement is typically allocated to your employees. What happens if you have visitors to the office? Will you be charged extra? These details must be written into the contract so that you are not met with a surprise cost.

In Case of Customization

You love the location, the building, and the amenities, but you are not happy with the layout and office space design. Will your Property Manager allow you to modify the office space according to your business requirements? This is a crucial factor because if you make modifications that are not allowed, the Property Manager can file a civil case against you.

Determine who will pay for these renovations, and clarify the approval process in the lease negotiations.

Before you sign, read the lease agreement carefully to find out if your Property Manager allows you to customize the office space to match your needs. If you have any questions, you can always ask the Property Manager for clarification.

In Case of Insurance

Most Property Managers require their tenants to prove General Liability and Business Insurance at the lease signing. You should already have these policies in place as a standard process of doing business. Still, you will need to work with your Insurance Agent regarding any changes in coverages due to relocation. These changes could ultimately impact your yearly premium, so consider this when preparing your final budget.

In Case of Relocation

In some instances, tenants will need to relocate to another similar space inside the same building. Read this clause carefully to understand who pays the cost of moving if you need to relocate during the lease term.

In Case of Assignment

Many Property Managers allow tenants to assign their lease agreement to a new tenant if they need to move out of the space. This is called subletting and will determine if and when the current tenant can re-let part of or the entire space to someone else. This is usually done by giving written notice to the Property Manager for approval. Keep in mind the Property Manager may try to negotiate a percentage of the office rent collected from the subtenant.

In Case of HVAC Use After Business Hours

The Property Manager will have specific hours of operation set for the commercial building during which the HVAC system will operate. Suppose you intend to use your leased office space outside of the predefined building hours of operation. In that case, you will need to read this clause carefully to determine if you may incur additional costs to your monthly expenses.

In Case of an Early Exit

You find a hidden gem, set up shop, and begin running your business. But sometimes things change. 

Does your lease agreement allow you to break the lease and walk away from the office space? Are you comfortable with the fees and penalties charged in such a scenario? Tenants often don’t consider this scenario in advance, but it’s good to have some kind of termination option in place.

Property Inspection

A property inspector can help you check out the property before you rent an office space or make any renovations. Your broker or representative will be able to provide a reputable reference for you.

An unbiased property inspector, one who has a credible record, will be able to tell you about the immediate renovations as well as future renovations. They will also be able to tell you if there are any structural damages to the property or not. An inspector will also help you get the wiring and plumbing checked as well.

An unbiased property inspector, one who has a credible record, will be able to tell you about the immediate renovations as well as future renovations. They will also be able to tell you if there are any structural damages to the property or not. An inspector will also help you get the wiring and plumbing checked as well.

Many states and cities require an inspection by law. Therefore, if you are relocating to a new city or state, check the local guidance.  You should be familiar with the codes and permitting regulations for leasing and renovations.

Step #5: Lease Negotiations & Final Signatures

If you are negotiating a commercial office lease for the first time, you can easily become overwhelmed by the numerous terms and conditions presented in a lease agreement. Focus on terms involving rent, expenses, improvements, and late payments. These are the primary considerations when signing a lease to rent an office space. Again, this is where a Tenant Representation broker would work on your behalf and negotiate the best deal for you.

It is important to note that a tenant can negotiate the lease agreement’s terms and extract specific concessions from the Property Manager. These concessions might include an advance deposit, tenant improvement allowance, rental rate increases, or any other term mentioned in the lease agreement. The ability of the tenant to secure concessions depends upon negotiation skills and the financial condition of the Property Manager. Market conditions may also impact the negotiations. If the building is in a prime location and has high occupancy rates, it might be difficult for you to negotiate any concessions.

Why You Need a Tenant Representation Broker

It doesn’t matter whether your business is big or small. Deciding to rent an office space, finding a desirable location, and negotiating a commercial lease can be daunting. There are innumerable variables to consider between the location, the building, the amenities, and the contract terms and clauses. 

Your office becomes the face of your company. Therefore, it’s prudent to invest the time and effort to get the best office space possible.

Tenant Representation Brokers will be able to easily compile a report of available properties based on your specifications. It could take several days, or even weeks, to create this report on your own. By the time you are ready to embark on building tours, some of those properties may no longer be available.

In addition, Tenant Representation Brokers usually have relationships with the commercial property managers in town, which can come in handy when negotiating final contracts.

At Lumicre, we are equipped with full market knowledge of Houston commercial properties. As such, we have access to proprietary software only available to commercial real estate professionals. We also have current data on real estate trends, rental rates, office space lease comparables, and classes of properties in your desired neighborhoods. We value high-quality talent, superior tenant-centric services, and unmatched deal speed to help you negotiate the best commercial office lease possible. 

Our team of experts is ready to help you rent an office space that meets your needs. Contact us today to learn more about our Tenant Representation Brokers.