5 Tips to Negotiate Your Next Commercial Lease Like a Pro
May 06, 2021 | By Julie Henline
I have two primary audiences who I work with: those who occupy office space and those who are responsible for leasing it to others. While these organizations have a symbiotic relationship, we find there is one area they tend to speak a very different language from each other — when it comes to talking about square feet.
If you are an occupier of office space, you will probably ask yourself the following questions over the course of your due diligence: Will the space fit our needs — and will it support a hybrid work model? What is making up the Rentable Square Foot (RSF)? What is Usable Square Foot (USF)? Should I procure my own measurement?
I’ve outlined five tips to bring better clarity and increase confidence so you can approach your next lease transaction like a pro:Will the space fit our needs … Will it REALLY fit?
As an occupier myself, I have firsthand experience maneuvering due diligence for new office space. It can be daunting to find the right location with just the right amount of space for now, but to also grow into over the course of your lease. If you are like many of my clients, you’re probably taking a serious look at a hybrid work model and that is telling you, at a minimum, you need a different mix of space types to support your employees moving forward.
Pro tip #1: Be clear on what square footage you are referencing when you go to market. When determining whether the space will fit your employees and business, the square footage you need to pay attention to is the Usable Square Foot (USF). Brokers and property managers will likely be presenting the Rentable Square Foot (RSF). Request any documentation of a recent BOMA study or area analysis to confirm the USF.
As an example: you’ve done the analysis and determined that 15,000 USF is needed to support your employees and business functions today and provide flexibility to grow. When going to market, you should probably be looking at suites advertised somewhere in the range of 16,500 -19,500 RSF, depending on the building. If you are interested in suites advertised as 15,000 square feet be sure to get clarity on what square footage that number represents.What exactly is making up the Rentable Square Foot (RSF)?
The Rentable Square Foot (RSF) includes the area within the bounds of the suite you are leasing, plus a proportionate share of all the other space in the building that supports your office suite. This may be space on the same floor — like a shared restroom, or in other areas of the building such as the lobby, corridors, balconies, mechanical areas, etc.
Pro tip #2: That delta between the USF and the RSF can go by many different names, including Load Factor, R/U Factor, Factor, Gross Up, or Market Factor, to just name a few. It’s common for these terms to be used interchangeably but they don’t always mean the same thing. Don’t assume. Ask for clarification on how the RSF was calculated with each property you are evaluating. This will help ensure transparency into your analysis of comparables.The RSF seems high compared to my USF. Does this mean the building is inefficient?
One misperception is that this “factor” is an indication of the building’s efficiency. When office buildings were nothing more than a small lobby and corridors to move people around to their suites, this may have been the case. But with today’s mixed-use building model, this factor is the result of both those core areas that service the building (lobby, corridors, mechanicals) plus it may also contain a proportionate share of the amenities that are desirable, but not necessary, for the building to operate.
Pro tip #3: If you are comparing suites in multiple buildings, be sure you have a clear understanding of the total USF of the suite for your occupancy and then compare what the building offers as you evaluate the added square footage that gets you to the advertised RSF. That lobby café, bike storage, wellness areas, and outdoor spaces may all factor into the RSF that ends up on your lease. If they are of value to your company, then the delta may be a worthwhile investment.How did the building owner determine the RSF?
In the United States, BOMA is the most commonly applied space measurement standard. When receiving square footage quotes from the broker, ask what measurement standard was used to derive the RSF. This will help you better understand if you are getting an apples-to-apples comparison between suites in different buildings.
While there are older version of the BOMA standard still in use, the most common you’ll probably run into are:
- Standard Method for Measuring Floor Area in Office Buildings (ANSI/BOMA Z65.1-1996)
- The 1996 BOMA standard was the first time the proration of space accounted for all areas of the building, including shared lobbies and other amenities.
- In 2010, the standard was updated in response to the growing trend of mixed-use properties.
- This release accomplished a number of necessary updates but as it relates to leasing, the biggest change is that for the first time, occupiable outdoor spaces such as rooftop terraces and balconies were factored into the building square footage.
Pro Tip #4: If the lease language references one of the above standards but says “modified,” this simply means that the building owner is choosing to go outside the standard in their interpretation of how to prorate square footage. It could be the modifications were made to present potential occupiers like yourself a lower load factor or it could be factoring space to maximize rentable area. Pay close attention to what the modifications are.Should I procure my own measurement?
It depends. Did a test fit prove that all of your space needs will fit into the suite? Are you happy with the outcome? If the RSF is significantly more than the USF you need to fit your program elements, are the amenities a value add to your employees? Ultimately, it comes down to the total deal and how much risk you are willing to take.
Pro Tip #5: If the space has any unique architectural attributes, such as canted walls, a measurement may be advisable. While such features may provide interesting design aesthetics, when it comes to measurements and square footage the lease is written on, confirm these features are appropriately handled. In one case, our measurement for a tenant ended up reducing the square footage of a floor by nearly 6%. While the difference wasn’t enough to negatively impact their space needs, it did bring down the square footage that ended up in the lease, and the cost savings over the term of the lease was significant.
There are many factors to weigh when selecting a new office. Keep in mind, BOMA is not a law. Building owners aren’t required to use it to determine how to proportion space in the building. Clarity that your new office space will provide enough square footage for employees and business functions is one area you can have confidence in when it comes to your next due diligence assessment.
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