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Leasing Office Space in Class A, B and C Buildings

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When you find yourself searching for a place to  set up your business or a new office building to move into, you have two options:  leasing office space or buying office space.  Many business owners opt for the former type of business setup, leasing, for many different reasons and find that leasing office space is preferable.  When you set out looking for office space to lease you will come across different varieties of buildings.  These are designated as Class A, Class B and Class C buildings.  The following will highlight what each type of building consists of and compare and contrast the varieties to help you to determine which type of office space is the right one for your commercial needs.

Understanding the Different Types of Buildings

As mentioned above, there are three different types of office buildings from which you can choose the best one.  Class A buildings are ones which are modern in construction and more technologically advanced when compared with the competition, and offer more amenities.  They have high quality attributes inside and out.  They are also located in more desirable commercial locations.  With all of these beneficial traits, you will find it no wonder that Class A buildings are often the most expensive type to lease.

Class B buildings are a bit different from Class A buildings.  While they are still modern in construction and have a good amount of amenities, they are not as high tech as their Class A counterparts.  They are also usually over 10 years old in construction and are not in as good of a commercial location as Class A buildings are.  With that said, they are less expensive and still great options to consider for those who are looking to lease office space.

The last type of office building which can be leased is a Class C building.  Class C buildings are the oldest of the bunch, usually 25 years old or more, and are often in desperate need of renovations.  These buildings are functional yet have the least desirable characteristics of the bunch and often house tenants who may not have the best of credit.  However, the rent is quite cheap on office buildings which fall within this category.

Determining Which Variety of Office Space Is Right for You

When you look into the various types of buildings for your new office location, you may wonder how to pick the right class of building.  This can be done by considering a few different aspects including cost, desired location, requested building amenities and age of the building.  If you have the budget, and image and amenities are important to you, then a Class A building may benefit you greatly.  However, if you are short on funds or trying to budget in the way of lease payments, perhaps the Class B or Class C building would have to do.  When it comes to location of the office building, business owners usually want to be in a prime location as this will benefit the business by attracting employees and customers, and making the existence of a large client base more likely.  However, keep in mind that location will cost you and you may have to settle for a Class B building in order to save on the lease payments.

You may also have certain desirable business amenities in mind when you are searching for a new office building location.  Think about what amenities are necessary and which ones are just luxuries which you may not absolutely need.  If you need a good amount of amenities in order to benefit your business and make it more financially sound then choosing a Class B or Class A building is advisable.  On the other hand, if you simply need an area to set up shop and do not have to have an office building with stellar amenities, the Class C building may work for you.

Also, the age of the building may be an important deciding factor for you.  A newer building will be more eye catching to clients who come to see you and will boast greater safety features than some of the lesser counterparts.  In addition, a building which is newer will often mean that you will have less calls to make to the landlord in order to fix problem, (HVAC, services, etc.).  Again, newer buildings will be higher cost ones in terms of lease payments so keep this in the back of your mind when reviewing the options.

Knowing the differences between the types of office buildings up front will help you to select office space which is most in keeping with your business needs and financial abilities.  You can zone in on the right type of office building and obtain a lease for office space which is affordable, contains your desired amenities, is not too old and is located in the perfect commercial business locale.

Leasing Office Space Guide

It’s no secret that commercial real estate values have declined in the economic downturn.  Landlords have suffered from increases in vacancy rates and tenant defaults.

While this is bad news for landlords of office buildings, it’s good news for prospective office space tenants.

Increased vacancies mean more office space rental options and increased defaults means those office tenants with strong financials have the potential to leverage their security in exchange for lower rental rates and lease concessions.

However, in order to effectively capitalize on these opportunities, you need to employ the right strategy.

These 10 steps will keep you on the right track.

Assemble key Decision Makers and Advisors

Before you begin analyzing your office space needs, assemble all your key internal decision makers.  This should include anyone with insight into your company’s forward trajectory and growth plans, including finance, human resource, and IT professionals.  Getting everyone on the same page from  day one will not only save valuable time down the road, but often these professional will  shed light on issues that might have otherwise been overlooked.

During this initial assemblage, you should also retain the services of a tenant representation broker.  Having one professional represent your interests provides for one single point of contact, allows for more effective negotiations, and ensures your commercial real estate broker is representing your interests rather than the landlords.

Determine Future Space Needs

Working with your professional space planner, carve out a future needs assessment.  You should be considering factors such as growth or reduction plans, projected budgets, anticipated technology requirements, as well as branding and image issues.  If you’re trying to create a ball park figure in your head, assume approximately 200 square feet per employee for general office space, with professional service firms such as attorneys usually using about 400 square feet per professional.

Handling this upfront is more important today than ever.  Many companies have gone through staff reductions and you may have extra space (and extra money) available right under your nose.

Additionally, this upfront planning can protect your company’s future.  For example, you may want to negotiate a right of first refusal on contiguous space.  If you don’t assess your space needs, you could miss an opportunity.

Create Your Real Estate Plan

Now that you’ve examined your potential space needs, get a summary down on paper.  Include information such as your cost parameters, ideal lease term length, ideal locations and building types (Class A, Class B, Class C), and organizational issues.  Do you need creative office space?  Do you need lots of perimeter offices?  Understand these needs now.

You should also address parking needs, security and access issues, office hours, timing, signage, and the need for tenant improvements.

Organize your list by priority.

Creating this plan upfront will avoid you touring space that won’t work for your business.

Present Your Requirement to the Marketplace

Now it’s time to put your tenant representative to work.

Armed with your detailed space needs, your broker will survey the market and come back with relevant options.  Since you’re working with just one broker, they will be able to confidently approach the entire marketplace on your behalf to ensure your hearing about every possible opportunity.

Tour the Marketplace

Now is the time to get out and look at space.  Bring your real estate plan and evaluate your needs and goals against the available space.

Shortlist and compare your top choices

After you’ve had an opportunity to tour all potential buildings, shortlist your top choices and create an apples to apples comparison.  Make sure you consider both the financial and logistical factors.

Request Proposals

This is where you begin to trade paper and negotiate your deal.

As we discussed, it’s a good time to be a tenant.  High vacancy rates are forcing many landlords to drop prices and increase their tenant concessions.

There is a flip side to this.  Landlords have been burned during the recession.

There is close scrutiny on financial statements and an increased wariness of unproven businesses.

You have to approach this stage properly or you can end up with a bad deal or no deal at all.  A good tenant rep is an invaluable asset during this stage.

Sign your Letter of Intent and Negotiate Lease Documents

Once an agreement has been reached, both you and your landlord will sign what’s known as a Letter of Intent.  This is generally a non-binding document that outlines the major lease points.  Your attorney will use this to begin drafting your final lease documents.  It’s a good idea for your broker to work in concert with your attorney to ensure the spirit of the language reflects the negotiated terms.

Navigate the Construction Phase

After your lease is signed, you’ll need to begin the work of improving your space.  It goes without saying that if you’re moving into a raw space that needs to be completely built out, this will be significantly more complicated than moving into a built-out space that needs minimal improvements.

If you’re looking at building out space, a good project manager can be an invaluable resource.  They can help you review construction bids, as well as bids from furniture and IT vendors.  They can also manage the construction process, coordinate inspections, and track progress against your projects completion dates.

Supervise Project Completion and begin Occupation

In this last stage, you’ll want to ensure the practical completion of the project, meaning, your contractors have done the job they said they were going to do, and the job is up to standard.

You’ll also submit your Code of Compliance Certificate to your landlord.  They will require this before you occupy the space.

You’ll also want to give your space on final walk through to make sure everything is in its place.