COULD THE TIGHT COMMERCIAL REAL ESTATE MARKET AFFECT YOUR BUSINESS?

Commercial real estate is at a premium, which means higher leasing costs and fewer options. Here’s how to find office space under these circumstances. MARCH 02, 2018 Has your company outgrown its office space? You might want to look for a new location sooner than later. Like the residential market, much of the commercial real estate market is currently tight. “Be mindful of your timeline if you’re six months out from a lease termination, or you’re running out of space,” suggests Tere Blanca, CEO and founder of the commercial real estate brokerage firm Blanca Commercial Real Estate. “Given that markets are tight, you need a long lead time to ensure you can get the best possible space and deal terms,” she says. If you’re set to renew your lease, you may find the rates rise substantially. “Tighter markets tend to be more landlord-friendly and have higher rates,” says Blanca. “Business owners renewing leases often get major sticker shock in tight markets.” Faced with rising leases and a growing workforce, many growing companies that aren’t ready to move have to make do with their current space. “When moving isn’t yet an option, maximizing space comes into play,” says Blanca. “Tenants may have to convert bigger spaces into smaller huddle rooms or take larger single offices and convert them to more open layouts with workstations for multiple employees.”

Why Finding the Ideal Office Space Is Important

Having the ideal workspace for your employees—one that offers sufficient space and desired amenities—can directly affect your bottom line. “The reality is you spend more waking hours in the office than you do at home,” says Eran Roth, CEO and founder of commercial real estate investment firm iintoo. “Working in a space you like, with the right balance of privacy and social interaction, can make a huge difference in the motivation of the workforce and directly impacts worker morale, retention and overall feelings of compensation.” For retailers, the location profoundly affects sales, believes Katherine Jensen, principal of Jensen Consulting, which specializes in writing and auditing commercial real estate leases. “A storefront in a busy plaza with complementary neighbors is going to help increase the potential for sales and your visibility,” she says. On the other hand, office space and its location may also influence your employees. “Certain features such as being close to the subway, parking on site or perks like discount gym memberships could be deciding factors for potential employees,” says Jensen The ideal office space can be critical to the culture of an organization, adds April Zimmerman Katz, owner and president of The Zimmerman Companies, a property management company, and Versa LLC, a provider of shared work space. “One of the most expensive tasks any owner or employer has is to find, train and retain talent,” says Katz. “Employees will look carefully at the home a company has chosen. If a space doesn’t feel inspired, it may be harder to expect employees to follow suit.”

Tips for Finding the Right Office Space for Your Company

Locating the ideal office space in a tight commercial real estate market does take some time and dedication, but it’s possible. Try these tactics.

1. Think and plan ahead.

“Focus on the space you’ll need in 18 to 24 months,” says Alex Cohen, chief commercial real estate specialist for The Alex Cohen Team. “Most office leases are five to 10 years in term. Many companies in the growth mode decide on an appropriately-sized space based on their anticipated head count within the first year of the lease. It’s far better to anticipate more long-term growth than to make do with overcrowded conditions or have to relocate.” One way to avoid having to relocate when you do run out of space is to negotiate and incorporate into the lease terms a right to more space that may become available in the building, adds Jensen.

2. Consider employee preferences.

“Look at where your employees are living and commuting from,” suggests Blanca. “Then choose a space that makes the most sense for the maximum number of employees. There will be a resulting increase in productivity thanks to decreased tardiness and absences.”

3. Look at flexible office options.

A traditional office may not be the answer in a tight market, suggests Katz. “Look at co-working options that allow rapidly growing businesses to move into amenity-rich commercial real estate spaces immediately. Co-working can offer offices that can expand and contract with business as needed and allow owners to get down to work.” Will Mitchell is co-founder and CEO of Contract Simply, a payment system software company. He is currently leasing a small office through a co-working space, and will soon be moving to a larger space with a six-month lease. “We’ll be getting a pleasant ambiance, a kitchen, comfortable furniture, new desks and chairs, conference rooms, a great location and plenty of parking,” he says. “Our plan is to look for a permanent location once we triple in size.” There’s definitely a rise in popularity of co-working spaces and requests for temporary office space, adds Clate Mask, CEO of Infusionsoft, a sales and marketing software company, and co-author of Conquer the Chaos. “The commercial real estate market is likely a contributing factor,” Mask says, “as is the desire for mobility as businesses and employees become more global.”

4. Consider your company’s Gross Rental Occupancy Cost (GROC).

“GROC is an important calculation new tenants often have no knowledge of,” says Jensen. “This number illustrates the percentage of your revenue being spent on your rental costs. Ideally, a successful business should land between 10 to 20 percent. In a tight real estate market, it’s important to know your budget before diving in and signing a lease.” Read more articles on planning for growth.

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