There is little doubt that with rare exception most office space markets are currently experiencing rising vacancies which lead to lower lease rates and/or better terms. In multi-tenanted office buildings, most new tenants are offered a "work letter" for the purpose of customizing the space to the tenants needs. A growing practice is for landlords to offer a "work allowance", a sum of money to be spent on the "tenant improvements" whereas others may offer specified quantities of "building standard materials" . In either case, the end goal for the tenant is to have the space built-out to suit their specific needs. This is a very important aspect of the transaction because the cost of the "tenant improvements" can be significant.
In a transaction I am currently working on the rent is $20.00 per square foot on a five-year lease and the landlord is going to pay $25.00 per square foot for the "tenant improvments". If the tenant could have found space that didn't require as much work, the tenant and the landlord could have benefitted. The tenant needs to quantify the work required to the space they are considering so they can determine wether the landlord is going to be spending more or less then anticipated. Armed with this knowledge the tenant can negotiate to receive the monetary benefit of any savings to the landlord.
"Market comparables" apply to leases as well as purchases. It's important to know the terms at which other comparable buildings are doing deals. This is not just the lease rate, but the lenght of lease and the "tenant improvement allowance". Most competant office leasing brokers have that information available to them, however, another way to achieve the same end result is to obtain proposals from several landlords simultaneously based on your specific needs for each building. Of course, this requires that you go through the planning process for each of the buildings.
Let me know if you have any questions on this subject or any other related to leasing or buying offices for your company's occupancy.
Randy Eigen
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