Leasing office space can be a complicated and costly process. Office space rates are often quoted in Full Service (FS) or Triple Net (NNN).
A FS lease rate includes all the operating expenses and taxes in the rate quoted for that year. Any increase in operating expense for the following year will be passed down to you (Tenant). For example, if you signed a FS lease at $30.00 per square foot (psf) and operating expenses were estimated as $13.00 psf, but expenses for the building increased by 5% the next year. You will be responsible for the 5% increase or $0.65 psf in addition to your base rent for a total of $30.65 psf.
A NNN quoted rate does not include the buildings taxes and operating expenses. The cost of those items will be directly passed on to you (Tenant). So a building quoting $30.00 psf NNN rate would also charge you the additional $13.00 psf for expenses or $43.00 psf in total.
Another expense that is often overlooked when leasing an office space is Internet/Voice/Data cabling. Office spaces do not come with this cabling by Landlord and it is the Tenant’s responsibility to, (1) confirm their internet provider services the building, and (2) schedule installation as well as cover the cost of installation. Cabling can cost in the $3-$5 psf range depending on the density.
Lastly, Tenant Improvements (TI) to the space if not properly negotiated can be a large expense for the Tenant. The cost of labor and materials to build out an office space has increased dramatically due to inflation and supply chain issues this past year, with standard tenant finish often exceeding $50-$60 psf. Therefore, it is important to know the best negotiation tactics in order to avoid paying for these costs.
If you are in the market for new office space or renewing your current one, be sure to ask a lot of questions and understand all the costs associated with it. You should also consider hiring an office broker, which is at no cost to you (commissions are paid by the Landlord). Having a broker can help you locate the ideal office space and get the best rate for you. The savings generated from negotiating properly can be substantial.
