Following payroll expenses, facilities and related expenses are generally the second highest expenditure for a company. While people are naturally the most important asset to a company, real estate decisions should not be far behind. Too often though, companies fail to see the significance of real estate in the same light.
The impact real estate has goes far beyond the bottom line because it plays an important part in everything from employee retention to the level of productivity and workplace morale. It’s for these reasons that companies should always be cognizant when making real estate decisions.
The top mistakes that companies make when leasing space are:
• Waiting Too Long to Start The Process. The longer a tenant waits to start the process, the fewer the number of options that will be available to them. Waiting too long can mean that a tenant will pay more, receive less favorable lease terms, or that they are forced to leave and take less than desirable space elsewhere.
• Leasing The Wrong Amount of Space. Figuring out how much space to lease is not an exact science. Forecasting involves assumptions, which can often lead to costly mistakes if incorrect. Uncertain events notwithstanding, companies should take the time and effort to work with a space planner or architect to plan and program to determine the right amount of space to lease. With that information in hand, companies should then go one step further and think about the impact certain business scenarios would have on that number, the likelihood of those events happening, and adjusting the number so as to minimize the likelihood of taking down too much or too little space.
• Picking the Wrong Location. What may seem like the right location might in fact not be. Companies should consider things such as access, public transportation, demographics, zoning laws, and other factors to help identify the right location for their business.
• Not Thinking About The Future. Aligning a real estate plan with a corporate business plan is difficult to do when milestone events and setbacks do not always go according to plan. To help deal with the “unknown”, negotiating leases which provide both expansion and contraction rights to the extent possible is therefore instrumental. Companies need to go beyond the simple lease and think about sublease rights, expansion rights, rights to cancel, and options to extend.
• Not Measuring The Space. Companies should strongly consider verifying the landlord’s square footage numbers. In larger transactions, even a small difference can translate into a large savings. If it is not possible to measure the space, tenants should at least try to negotiate a tolerance in the measurement. Generally though, and per BOMA standards, a variance of up to 2% is acceptable.
• Signing Too Long or Too Short of a Lease. Companies often think that by signing a short lease they are buying themselves flexibility. That may be true in many cases, but that flexibility often comes at a price. On the flip side, tenant’s may feel a long term lease provides maximum stability, but there are far too many cases – particularly in Silicon Valley where swings in rent can be large – where long term leases signed at the height of the market have gone so far as to force companies into bankruptcy or caused severe harm to the company. It’s therefore imperative that companies take a long-term approach to real estate, while keeping short term trends and business activities in focus.
• Not Verifying Building Systems and Infrastructure. In today’s environment, data, power, networking, and HVAC capacity and availability are crucial. Tenants should ensure that buildings they intend on occupying are capable of providing the network connectivity and other building systems necessary for a tenant’s operation before signing any lease.
• Not Having Your Insurance Carrier Review the Lease Language. Tenants should always have their insurance carrier review the language within a lease that pertains to insurance and subrogation to verify that the insurance is not only attainable, but attainable at a reasonable cost. It is strongly recommended that the actual lease or lease language be sent to your insurance carrier for review before any lease is signed.
• Not Retaining Legal Counsel. By using an attorney well versed in the documenting of a real estate transaction, companies can help avoid ambiguity and errors which could lead to expensive litigation or legal wrangling down the road.
If you are looking for commercial real estate space and do not want to make one of the preceding mistakes then contact The Sundance Company and we can walk you through the process of procuring a great location for your business. Established in 1976, The Sundance Company has more than 1.5 million square feet of office and industrial space available in prime locations throughout the Treasure Valley including Boise, Meridian, and Nampa so contact us today to see how we can help you find the right office or retail space for your company. More information is available at www.sundanceco.com or 208.322.7300.