Part 2 — Choosing a New Office Space for Your Business

Part 2 — Choosing a New Office Space for Your Business

Do you need a broker to help you find your new office space?

As in any rental or purchase situation, a broker provides a worthwhile service. A good real estate broker usually has experience negotiating leases and is familiar with the rental process, specifically what to expect and the applicable law.
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However, all real estate brokers are not necessarily good negotiators. Finding the right broker can be difficult and getting one will cost you money — not directly, but after you sign your lease. While the broker in commercial rentals are paid by the owner/landlord this usually hampers any rental price negotiations, because the landlord is responsible for the broker fees — usually as much as 5% of the first year’s rent, 4% of the 2nd year, etc.
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Each part of town offers its own benefits . . . the Financial District.
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Calculating Rent for Your Office Space and Understanding Rentable and Usable Space

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You should know two key pieces of information before beginning to look for a small or large office space: how to calculate rent and the difference between rentable and usable space.
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Most often, rent is listed as cost per square foot a year. To find the total cost of the rent you will be paying each month is easy, all you have to do is use this rent formula:
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Cost Per Square Foot Per Year x No. of Square Feet
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All office space sizes you will see listed indicate rentable space, not usable space. It is common practice to include an allotment of the common spaces in a building (such as the halls, basement, bathrooms, lobby, staircases, etc.) in the rentable square feet. This isn’t space that the individual tenant can use for their own office per se. The additional space allotment is referred to as the loss factor, hence the formula for usable square feet (the actual amount of office space) is:
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Usable Square Feet = Rentable Square Feet – Loss Factor

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So a space of 4,286 sf rentable might have a loss factor of 30% resulting in usable square feet of only 3,000 sf. That means if you need, 3,000 sf, you will want to look for spaces that are 4,286 sf. Rental rates are charged on the number of rentable square feet. So if you need 3,000 sf and the rent is $50 a square foot, you will be paying $214,300 per year (4,286 sf x $50) or $17,858 per month. [Your rent will not be 3,000 sf x $50 = $150,000 per year or $12,500 per month.]
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While loss factors when renting can vary, they are usually in the same ballpark. However, beside the loss factor rate, you must be careful to ascertain how the office space is measured and how the loss factor is calculated. There are generally accepted industry guidelines for these types of renting calculations, but there is no standard industry practice. Some landlords will aggressively maximize square footage calculations and the rent they charge.
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Each part of town offers its own benefits . . . Dumbo in Brooklyn.
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Finding Potential Office Spaces

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In the past, a real estate broker was essential to locate available office spaces, because that was the primary way most landlords marketed their space — listing them with office space brokers. Today, the Internet provides many outlets for finding an office space quickly online and to one that matches your specifications. In fact, working with a real estate broker can limit your choices, because today’s office landlords often do not list their spaces through brokers, but use online listings to make known space availability.
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You can find a small office space by neighborhood, size, price and many other categories on sites such as these:
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Loopnet www.loopnet.com
Cityfeet www.cityfeet.com
Mr. Office www.mrofficespace.com
Office Dragon www.officedragon.com
Craig’s List www.craigslist.com
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There are a few helpful tips you should know about when looking for listings online:
  • The New York Times Real Estate Listings are a feed from Cityfeet so you need only look at one or the other.
  • Be careful not to mistake executive office suites for a standard offices, they are sometimes presented in a way that can be misleading.
  • Brokers will often take listings posted on real estate sites by landlords and use the information in their ads. If the ad does not list the address of the building, it is likely a broker listing and not the original listing by the building owner. These broker listings are often poorly managed so you’ll likely find many office listings that are no longer available.
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Each part of town offers its own benefits . . . near Central Park.
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Is this THE Space?

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Once you have narrowed down your office space choices based on the criteria you’ve established (See Part 1 of this article), it is a good idea to sit in each of the office spaces you have chosen as possible candidates and really get a sense of what they are like.
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Is the office noisy or quiet?
What’s outside the windows of the office space; any potential issues now or in the future?
Is the light good or potentially too strong at any point in the day?
Is the office space you are choosing hot, cold, drafty?
If there are common bathrooms on the floor, what are they like?
Talk to the neighbors about what they like and don’t like about the office building.
What do other tenants think of the landlord/management and the services provided?
Do the neighbors seem helpful, quiet, and professional?
How is the elevator service? Try it a few times.
What other amenities are offered?
Take a walk around the block and around the neighborhood.
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Each part of town offers its own benefits . . . close to the waterfront.
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As you narrow your choices, you should also start to ask questions about all the charges you may incur when moving into your new small office space.
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Build Out Costs You should look at the comparable costs to build out each candidate space.
Real Estate Tax Generally, real estate taxes are apportioned and charged directly to tenants based on the relative size of their office space.
Fixed Index Step-ups Most leases have some type of escalation clause. These increases in rent are intended to address price increases resulting from market pressures, rises in operating costs and inflation. There are three generally accepted escalation vehicles. The first is a step-up, which is a set percentage increase in the rent fee yearly or at fixed years during the term of the lease.
Operating Expense Pass-Through This escalation vehicle calculates increases by apportioning operating increase to each tenant. This type of escalation is rarely used now, because there are many parts of such increases that are open to negotiation and discussion.
CPI Increases Another type of escalation is a CPI increase, which is a percentage increase in the rent calculated using the consumer price index.
Electric Charges Electric may be delivered to your office through common building meters. In this case, the landlord will apportion the charges and bill your electrical charges with the monthly rent. The landlord can provide you with an estimate of what these charges will be. If the electric entering your space is directly metered, the electrical charges will be sent to you from the utility company.
Debris Removal There are usually no additional charges for the removal of regular office debris. However, buildings customarily have special charges for large dumpster disposal and for the removal of computer equipment (NYC requires special disposal of such material).
Freight Elevator Service Typically, there are no additional charges for regular freight service. Some buildings do charge a move in and move out fee and it is common to charge by the hour for freight elevator service after hours and on weekends.
Other Charges Inquire what other additional charges there may be. For example, determine whether air conditioner maintenance is a building or tenant responsibility, if is there a charge for window washing, of if you have to pay for extra keys, etc.
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Each part of town offers its own benefits . . . Midtown.
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