2017 is looking to be another strong year for Metro Denver and Colorado business.
Citing the annual Colorado Business Outlook published by the University of Colorado Boulder, the Denver Post recently confirmed that Colorado should rank among the top 10 states for job growth for a sixth year in a row.
Unfortunately, with success can come higher office and operational costs. If you’re a CEO or business leader either considering renewing or extending your lease, or planning an expansion or relocation in Metro Denver, here’s 6 tips to help keep your costs down.
KEEP YOUR OPTIONS OPEN WITH BACKUP PROPERTIES
One of the best strategies for keeping costs in check is to locate alternative spaces that work for your needs and to keep your options open.
This is particularly important when renewing your lease. Landlords know that it takes money and downtime to move, which puts the leverage on their side of the table.
Identify at least two to three alternative locations that will work for you, and make it known in negotiations, to gain more leverage and increase your ability to lock-in better terms.
NEGOTIATE A CAP ON ANNUAL OPERATING EXPENSE INCREASES
Property values continue to rise in Metro Denver, meaning higher property taxes and other operating expenses will likely follow. Landlords pass the costs of growing property taxes and other operating expenses onto their tenants.
Work with your tenant advisor to clearly understand the cost impact of real-estate taxes and operating expenses, and projected increases for properties on your short list.
During negotiations, be sure to include an annual cap on the amount of controllable operating expense increases your landlord can pass onto you.
NEGOTIATE MORE LANDLORD CONCESSIONS
Landlords will often provide concessions to tenants to win their tenancy, such as construction allowances, free rent, signage allowances, free parking and much more.
Many landlords may even be more inclined to increase these concessions in lieu of reducing rental rates, since higher rental rates are what add the most value to their building.
Understanding a landlord’s goals can help a tenant find a great balance of negotiating the lowest rental rate possible while achieving the highest level of concessions.
NEGOTIATE FLEXIBLE LEASE TERMS
Flexible lease terms are one of the biggest ways you can save costs moving forward. At a minimum, consider negotiating flexible terms for the following:Rights to Expand — An explicit clause in contracts that gives you the flexibility to lease additional adjacent space, while also locking in and transferring your current lease terms to the expanded total square footage.
Rights to Terminate — An explicit clause in contracts that gives you the ability to terminate the lease within a mutually agreed upon timeframe.
Rights to Downsize — An explicit clause in contracts that ensures you have flexibility to renegotiate lease terms and/or reduce the total amount of square footage if something materially changes with the business.
HAVE A CLEAR PICTURE OF YOUR IDEAL SQUARE FOOTAGE
It may seem obvious to only lease the amount of square footage you need, but determining optimal square footage isn’t always as straightforward as it sounds. You’ll not only need space for current employees, but space (or lease flexibility) to accommodate future growth as well.
To get a clearer picture, research benchmarking reports (many are available online) that provide the average square-footage-per-employee for your industry.
Use these data to begin calculating the square footage you’ll need for the number of employees you have today, and the additional space you may need based on your future hiring plans.
A great place to start is the Office Experience Exchange Report (Office EER) and the Industrial Experience Exchange Report (Industrial EER) published by the Building Owners and Managers Association International. A summary of both 2016 reports was recently published by Facility Executive magazine in an article here.
Another critical way to increase cost-efficiency is to work with your architect to create a space programming plan.
A space program defines a wide range of physical attributes for your next office, including the ideal sizing for offices, cubicles and other spaces, based on your business’s unique operating characteristics.
It then helps you calculate exactly how many square feet you’ll need to accommodate your needs, and how to fully optimize the layout to maximize utilization and avoid waste.
If you’re not familiar with this technique, check out this space program we recently helped create for one of our clients. It will give you a good sense of what they include.
There’s also a more in-depth article here from the National Institute of Building Sciences that gives a solid introduction.
HIRE A TENANT REPRESENTATIVE BROKER
One of the most effective ways to ensure you are getting the maximum ROI from your next move is to hire a Tenant Representative Broker (TRB), who will provide expert guidance on the five tips above and much more.
Your TRB will help ensure you are seeing all the properties available in your defined area that meet your space program requirements, help you maximize cost-efficiency, and act as your fiduciary representative in all negotiations.
Further, many people are often unaware that the costs of TRBs are already built into the rental rates of properties they are considering or are currently leasing. They may already be paying for the services of a TRB, but aren’t taking advantage of the benefits.
In future posts, we will provide recommendations on how to evaluate TRBs and effective strategies for choosing a representative that best fits your needs.
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