Commercial Real Estate News / Leasing/Renting / Five Mistakes First-Time Office Lessees Make (and How to Avoid Them)

Five Mistakes First-Time Office Lessees Make (and How to Avoid Them)

Published: 07-17-24 Category: Leasing/Renting

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Leasing an initial office space is a big deal for any business owner, no matter how much experience you gained managing other businesses before striking out on your own.

The right combination of carefully chosen office space combined with a properly negotiated lease contract can help you grow your business, keep expenses under control, and attract the most talented staff.

To help you navigate every step of this process, we've researched and identified some of the most common mistakes made by beginner business tenants.

Reviewing these will help you be much better prepared for your search for the ideal office while making the process considerably less stressful.

We'll start with a potential problem that you can address early on, before you begin viewing properties.

#1 – Underestimating Your Total Occupancy Costs

Don't focus solely on the base rent or price per square foot. Overlooking other expenses like insurance, utility bills, and maintenance fees can hinder your business' growth by squeezing your overall budget.

Fixing this is relatively simple. Ask potential landlords for a detailed breakdown of all costs associated with your rented space, and ensure these details are included in the lease contract you sign.

Also, consider which costs may increase during your lease term, such as insurance premiums or taxes.

Creating a comprehensive budget that includes all possible expenses helps ensure your business won't suffer from cash flow or similar problems.

Also, successfully negotiating your lease's terms can reduce your actual rent payments, bringing them below your budget estimate. Not doing this is another common slip-up.

#2 – Neglecting to Negotiate Lease Terms

Don't assume that the lease terms presented to you by a landlord aren't negotiable.

Instead, decide that you're not going to be intimidated, even if a landlord acts as if their initial lease is the only version you'll be offered.

Remember that everything is negotiable, from rent prices to fees, to maintenance costs, to the length of the lease.
Research the rental rates for similar office spaces in your area so you'll be aware of the going market rate.
Consider working with a commercial real estate broker or tenant representative who can negotiate on your behalf.
Don't be afraid to ask for concessions, such as introductory periods with reduced rent or a tenant improvement payment.
If office space in your neighborhood has a higher vacancy rate, keep in mind that this creates a leasing market that's in your favor instead of the landlord's. In other words, the landlord needs your rent more than you need a particular landlord.
Other clauses worth negotiating are expansion and/or termination options.

No matter how well you negotiate the lease, make sure you're renting in the right area. You don't want to be stuck in an office space that makes life difficult for you, your staff, or your clients.

#3 – Leasing the Wrong Location

Don't select a location based solely on a bargain rental rate or new decor without considering its impact on your business and staff.

Analyze your existing target market, and choose a location with matching demographics. (All MyElisting.com lease listings contain demographics for local household incomes, education levels, ages, and more.)

Consider how easily your employees and customers can reach your destination, either by public transportation or vehicle/parking.

Evaluate the neighborhood's safety, reputation, and future development plans. Check for neighboring amenities that can make your new office a pleasant place to work and visit.

#4 – Not Allowing Space for Growth

Don't overlook the fact that you may need to take on additional staff, equipment or office systems without going through the expense of moving to your next office.

Instead, take your business expansion plans into consideration when negotiating the length of your lease.

Project your growth over the lease term and choose a space that can accommodate it. Generally, allowing an additional 10% of square footage to accommodate future business growth should be sufficient.
Consider choosing a flexible workspace, a coworking option, or a shorter lease term if there's a good chance that your business will “outgrow” a traditional three- to five-year office lease term.

The last mistake is one that nobody wants to think about, but requires contingency planning to help preserve your investment in your business.

#5 – Failing to Plan for Worst-Case Scenarios

Don't ignore the possibility of potential business disruption when deciding to commit to a long-term office lease. While chances are small that we'll see another COVID-19 pandemic, other unforeseen speed bumps can appear without warning.

Look into different types of business and leasing insurance premiums.

Negotiate subleasing rights so you'll have more options if you need to downsize.

Consider negotiating a termination clause within your lease that can be exercised under specific conditions.

In addition, discussing strategies to protect your business with a broker or attorney will clarify your obligations in case of a lengthy business interruption, including strategies for mitigating personal risk.

While these aren't the only five situations with the potential of slowing your business growth, you can learn more about succeeding in business by checking out our other articles here in our MyEListing.com Learning Center.

Researching these articles, careful planning, and professional guidance are the keys to the best possible lease for your business.

Finally, don't hesitate to seek advice from commercial real estate agents, attorneys, and financial advisors. Their expertise can prove invaluable in helping you make informed decisions and negotiate favorable terms.