Commercial Real Estate News / Leasing/Renting / Finding Office Space for Lease: The Business Owner's Guide

Finding Office Space for Lease: The Business Owner's Guide

Published: 10-02-23 Category: Leasing/Renting

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The inside of a busy office space location.

Unless you plan to buy office property for your business, you'll most likely end up leasing commercial property instead. Leasing commercial property can provide a number of benefits over purchasing, such as lease flexibility and short-term cost effectiveness, among others. Yet, doing so may seem intimidating, especially for first-time renters.

Finding the right office space for lease often spells the difference between enjoying business productivity or dealing with bad lease terms and a difficult landlord.

Here, we'll cover what business owners should know when renting office space. We'll discuss common office space lease terms, average office rents, and strategies for finding the right space.

Let's get started.

What's the Most Common Office Space Lease?

The type of office space lease that you sign plays a significant role in how successful your venture becomes. By far the most common type of lease for renting office space is a net lease. In a net lease, the renter pays a monthly rate on top ofr specific building operational costs.

You can further divide net leases into three types that differ based on which expenses the renter must cover:

In a single net lease, the tenant pays rent and property taxes and the landlord pays for insurance and maintenance.
In a double net lease, the tenant pays rent, property tax, and insurance, while the landlord pays for maintenance.
In a triple-net (NNN) lease, the tenant pays rent, and all management and upkeep costs, including property taxes, insurance, and maintenance. The owner only covers basic structural repairs.

Of these three, NNN leases are usually the most common when renting office space. There's also the option for a gross lease. With a gross lease, the tenant pays a flat rate that the landlord uses to cover operating expenses. Gross leases usually involve higher base payments, but they can make it easier for a business to accurately budget for monthly rent.

What's the Most Common Lease Term for Space in an Office Building?

The typical commercial lease agreement for a space in an office building ranges between three and five years. Most tenants will probably get a “5 and 5,” which stands for a five-year lease with an option to renew for five additional years.

All other things being equal, longer lease terms offer lower rental rates because landlords consider them lower risk.

How Do You Find Office Space for Lease?

Finding Office Space for Lease: The Business Owner's Guide

The most straightforward place to look for office space for lease is an online commercial real estate listing service. Listing services connect tenants/buyers with landlords/sellers and can facilitate real estate transactions. Services, like MyEListing, allow businesses to search thousands of listings and directly connect with property owners for free.

Alternatively, you can work with a commercial tenant broker. Tenant brokers specialize in representing tenants looking to lease commercial real estate. They use professional networks to find favorable leases for commercial tenants and can also help negotiate lease terms.

How Do You Calculate Monthly Rent for an Office Space?

The pressing question that all commercial renters must answer: How much can I afford to pay for rent?

The answer differs depending on your industry, but most sources agree that you should try to budget 20% of business revenue towards commercial rent.

You can get a general idea of an ideal commercial rental rate for your business by taking your annual expected rental rates, multiplying it by a percentage between 2% and 20% (depending on your industry average), and dividing the answer by 12.

Monthly Rent Calculation Example

Say your business generates $350,000 in annual revenue, and your industry's typical rent/sales ratio is 12%. You should aim to spend about $3,500 to $4,000 a month on commercial rent.

Keep in mind that this formula is just an estimate, and ideal ratios ultimately depend on your unique situation. Average commercial leasing rates differ heavily depending on the location, and you should keep your rent/sales ratio lower than the industry average if your business income tends to fluctuate.

Extra Advice for Finding Office Space for Rent

These additional tips can help you avoid the common pitfalls of renting commercial property.

#1 – Compare Rents in the Market

Don't just calculate your rent ratio and immediately grab the first property that falls into it. Take the time to compare rents for different properties, taking into account square footage, location, accessibility, amenities (e.g., parking or nearby food), and office layout.

The more you know the local market, the better position you'll be in to assess the value of rental properties.

#2 – Include a Lease Renegotiation Clause

Consider including a clause in your lease that allows you to trigger lease renegotiations.

For example, a lease negotiation clause that allows you to negotiate a lower rental rate when you renew the lease can be useful if your business's financial situation might change in the near future.

#3 – Don't Forget About Lease Concessions

Be sure to ask about lease concessions, For example, a tenant improvement allowance can provide you with funds for building upgrades, and rent abatement can reduce business expenses while you get adjusted to your new location.

Landlords usually offer lease concessions to incentivize tenants and fill vacant space.

#4 – Hire a Real Estate Attorney to Look Over the Lease

We recommend hiring a real estate attorney to go over any and all commercial documents you may come across in your journey.

A real estate attorney on your investment team can clarify complex lease terms and clauses for otherwise unknowing business owners; the last thing you'll want is to find yourself stuck in a bad deal you could have easily avoided with the right help.

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