Understanding Office Space for New Companies in NYC
Understanding Office Space for New Companies in NYC
Understanding office space for new companies in NYC is intended for young businesses that lease commercial space. For newer business finding office space is challenging. A discussion about market conditions and strategy follows.
(1) UNDERSTANDING OFFICE SPACE… SUPPLY
At the start of 2017, the overall office vacancy rate in Manhattan was 8.10%. Although there are indications that the market is slowing (link HERE), most Landlords remain selective about who they will lease space to. From a Landlord’s perspective the best Tenant is one that will consistently pay its rent on time throughout the entire lease term. Newer businesses are considered higher-risk, and start-up ventures even more so.
Sample Limited Guaranty
• Strategy: (1) Make certain that you have verifiable financial reports and (or) Federal Tax returns available for review by the Landlord. Any delays providing these documents or irregularities will jeopardize your deal. (2) Be prepared to pay a substantial Security Deposit either by check or a Letter of Credit. Depending on the Landlord’s policy the Security Deposit will range from three- to 12 months. (3) Understand the meaning of a Good Guy Guaranty (aka Limited Personal Guaranty) which is required by most Landlords. A sample is found in the adjacent area.
(2) UNDERSTANDING OFFICE SPACE… PRICING
Current rental rates are the highest they have been since the 2008 recession. In January 2017 the average quoted asking rent across all building classes is: Downtown $53.26 per square foot; Midtown $71.09; Midtown South $64.74; and Uptown $50.58. (For our most recent market report on rental rates city-wide, link HERE.) Although lower priced buildings can be found and negotiated rents are often lower, office lease overhead remains a large budget item.
• Strategy: (1) Try to reduce the size of your office by modifying the design and reducing the area occupied by each employee. Use our office space calculator to estimate your essential requirement. (2) Find more economical neighborhoods and buildings. Many “vintage” mid-block buildings have been upgraded and provide contemporary work environments at lower rental rates. (3) Get creative with work space. Flexible work schedules may allow two or more employees to utilize a specific work area. Some companies use hourly or daily rentals at off-site business centers for part-time staff and conferences. Where practical utilize telecommuting.
(3) UNDERSTANDING OFFICE SPACE… LEASE TERM LENGTH
Most Landlords want to “lock in” today’s high rental rates with a 5 to 10 year lease term. Occasionally a 3 year term will be offered provided that the Landlord is not required to do costly renovations.
• Strategy: (1) Consider an office sublease which often has a shorter term and may include valuable improvements such as furniture, phones and wiring. (For our report on subleases, link HERE.) (2) When leasing office space directly with a building owner, try to negotiate an “Option to Expand” to the adjacent office, within the building or elsewhere in the Landlord’s portfolio. (3) If you are certain of expansion in the future and cannot accept the restrictions contained in an “Option to Expand” try to negotiate a “Lease Termination Option”. This will require the payment of substantial money penalties.
USE A REALTOR THAT SPECIALIZES IN TENANT REPRESENTATION
Because understanding office space is very difficult in a large and complicated market like New York City, using a Realtor that specializes in Tenant Representation is smart business. An experienced NO FEE Realtor like Cogent Realty Advisors, Inc. will provide essential services:
• Finding office, loft and retail spaces for rent based on an analysis of you needs • Negotiating new leases and lease renewals • Marketing vacant or surplus space through a sublease or assignment • Buying and selling commercial property. Call Mitchell Waldman for a confidential discussion about your office space needs: (212) 509-4049.#UnderstandingOfficeSpace
