"If you are a business that will face an expired lease in the coming year there are several points you should remember now more than ever in deciding whether to re-lease in your existing building or consider a move to a new location," he adds.
The first thing to do is understand exactly how much square footage is currently leased and how much is actually needed. Most leases do not list square footage, instead showing a dollar amount or an approximate rental number, mainly because rent is paid on rentable square footage, which includes common areas of the building that are shared.
Hansson notes because there are no official standards of measurement, building owners are rarely exact in determining this common area charge. This can cost the tenant significantly.
"Some Downtown office buildings can have up to a 30 % loss factor" Hansson says. "This means that for every 1,000 sf you lease 300 sf of your space is sitting in your hallways. Remember for each 500 sf you lease you are adding $12,000 to $18,000 a year to your budget. Ask the question what is the load factor for this building."
In addition, it is in a tenant's best interest to monitor annual operating expenses, as the landlord is entitled to pass on to its tenants a share in increases in the building's operating expenses at the end of the lease year. These increases are in addition to previously negotiated rent increases.
Although it is in the owner's best interest to keep these expenses as low as possible, some buildings are not run efficiently. The Building Owners and Managers' Association reported average increases in operating expenses to run between 2% to 3% before 2000 and before the energy crisis.
"We recently moved our office and received a going away present of a whopping 17% annual increase in operating expenses over a two-year period," says Hansson, recommending tenants inquire about the building's prior history of building expense increases.
In addition, it is important to review electrical and data capacity available in office buildings, as well as the costs of any new services needed before signing a lease. Costs for meeting connectivity standards can be harsh on a budget.
Finally, Hansson stresses the importance of working with an experienced broker who will assist in meeting space and budget requirements. The building with whom the tenant rents from will pay the broker fees so there is no cost to the tenant. Working with more than one broker can hinder the relocation or renewal process, as using numerous brokers means that no one is really working for the tenant or spending the time necessary to analyze his needs.
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