The Seven Mistakes Tenants Make When Leasing Office Space

It seems simple...set out a plan and execute the plan.  Works in just about every aspect of business.  But you have to know the details to actually create the plan.  Bert Rosenblatt and Anderw Stein of ITRA Global came up with an impressive list of details you don't want to miss when you are looking for office space.

1. Lack of Planning. Believe it or not, many tenants aren’t clear on what exactly they need. If you’re out looking for ten thousand feet but you actually need fifteen thousand, you’ve got problems.

Have an architect do a space program and figure out how much space you really need.
A lot of architects will do this for free as a favor to your tenant rep broker. Between a good architect and a good broker you can get clear on things you might not be thinking about, like floor load capacity – do you have a safe or a lot of equipment – then you need reinforced floors.
Do you need extra electric to your space? Have special telecom needs? Knowing these details up front will save you time, money and aggravation down the road.

2. Lack of tenant representation. We could write an entire article on the benefits of using a tenant representative but suffice it to say there’s really nothing better than hiring one to be on your side. A broker understands the ins and outs of the market; they can negotiate for you, and best of all, can narrow down the buildings that would be best for your particular business. Their know-how and advice are indispensible, and they can prevent you from making some major mistakes which you will pay for down the road. Such is also the case with an attorney. Many tenants hire lawyers that don’t specialize in commercial real estate – this is a mistake. Like your tenant representative, you need an attorney that understands the monster that is commercial real estate.
 

3. Lack of document inspection. Leasing an office space means a whole lot of paperwork. One of the most common mistakes tenants make is that they’re not careful enough with what they sign. Everyone should read the documents – you, your attorney and your broker.

Further, the ownership documents need to be vetted too. Make sure your space is legally zoned for commercial purposes and for your use in particular, and that it conforms to various safety codes and is built in accordance with the prevailing rules and regulations.

4. Rent and security deposit. Before agreeing to the monthly rental, many people do not benchmark similar properties, and end up paying rent through their nose. It is important to compare similar office properties and find out the going market rent in that area before entering into negotiations with the owner. This is Real Estate 101 for tenant rep brokers. Hire them - they know what they’re doing. However, if the owner of the office space seems to be in a tearing hurry to rent out his place, you can always negotiate with him and save yourself some money.

5. Not checking lease terms. A tenant must read and understand the lease terms carefully.  

Are you comfortable with the notice period? Let’s say the landlord has the right to relocate you to another floor or space in the building (something that is common for smaller deals) – how much notice do they need to give you?

What if the lease says 30 days? Can you really pack up and execute a move of both your physical stuff and your technology in 30 days? Probably not.  Do you have a sublet and assignment provision? Is it fair?

6. Underestimation of negotiating leverage. Tenants have a tendency to think that the landlord is all-powerful, but that’s not the case. Ultimately, a landlord is in a service business, and his business is to keep his building full. If this means he has to negotiate with his tenants to fill his spaces, he will. 

7. Too little time. Tenants drastically underestimate how long it takes to renew a lease or to move. Depending on how much space you have and how complex your technology is, it could easily take 8- 12 months to negotiate your deal.

As always, the professionals at Cushman & Wakefield|Cornerstone CRES can help you through these steps.  Feel free to contact us at 865-617-2989 or jcazana@cornerstonecres.com



Bert Rosenblatt and Andrew Stein are principals of Vicus Partners, LLC and the ITRA affiliate for New York City – Downtown. Bert Rosenblatt can be reached at (212) 880- 3747 ext. 6619 or at brosenblatt@vicuspartners.com. Andrew Stein can be reached at (212) 880-3747 ext. 6620, or at astein@vicuspartners.com 

 

Industrial Space in the Knoxville Market

Knoxville is a bit different when it comes to the industrial/warehouse/distribution market.  Because of the market’s proximity to so many major interstates, I-40, I-75, I-81 and being so close to major cities like Charlotte, Atlanta, Nashville and Cincinnati, you would expect more of a distribution presence.  But that is not the case.  While there is about 32 million square feet of what would be considered industrial space much of it is dated and not the new high-bay space required by top-flight tenants.

DCP Warehouse- Knoxville, TN

What do you need to look for?  It varies just like retail and office, but functionality often replaces locations on the priority list (as long as the location is not to bad).

Space Attributes

A wide range of storage alternatives, material handling equipment and software exist to meet the operational requirements of a warehouse space type.  Intergration of these features is essential. Warehouse spaces must also be flexible enough to adapt to future operations and storage needs.

Functional / Operational

• Use of Space: Warehouse space types are often designed with higher bays to take advantage of vertical storage. Utilization of space is maximized while providing adequate circulation paths for personnel and material handling equipment such as forklift trucks.
• Power and Utility Requirements: Differentiate between spaces that require power and utilities, and those that are for storage only. Depending on the goods being stored and handling equipment required, there may be a need for well-distributed power and utility lines throughout the space. Attempt energy-efficient lighting when possible. Warehouse spaces typically include one floor drain for every two bays of storage, as well as sand and oil traps on waste lines.
• Loading Dock: Warehouse space types are typically designed with one electro-hydraulic dock leveler per every five truck bays.
• Fire Protection:  New buildings sometime are built with an ESFR sprinkler system that allows each sprinklerhead to put out almost 100 gallons of water per minute!  These are few and far between in Knoxville.  In fact, DCP Warehouse installed Knoxville's first ESFR system in 2008.
• Special HVAC: Provide proper ventilation under all circumstances. Plan for 100% exhaust from storage areas with paint, petroleum, aerosol, or other minor amounts posing moderate hazard storage conditions.

Determine the type of space you’ll need. Have a good grasp on requirements for phone, broadband data service, HVAC, gas, water and electricity. You’ll want enough power to provide adequate lighting and operate necessary equipment. Take all your needs into consideration when looking at space: storage for raw materials and finished product, a production area or assembly line, ceiling height, column spacing, dock-high or drive-in truck access, signage, offices and rest rooms. Think about proximity to freeways for access, as well as public transportation, parking requirements and, possibly, rail access.

Try to develop a preliminary layout that takes into account all aspects of your operations. The layout should include utility connections for each piece of equipment. With this information, you can determine what type and how much space you’ll need.

As far as Knoxville is concerned there are dozens of small/medium warehouses (less than 40,000sft)  available but fewer of the larger size (+40,000sft ).  In fact only seven can be found on the MLS that exceed 80,000sft.  Doesn’t seem like much does it.

For comparison, Columbia, South Carolina (with a metro area only 50,000 more that Knoxville) has three million more square feet of industrial space. Birmingham, Alabama has 123 million square feet of industrial space.

There is space out there.  It just depends on what you are looking for.  Cushman & Wakefield|Cornerstone CRES can help you find it. 865-617-2989 or jcazana@cornerstonecres.com

Resources:  Whole Building Design Guide (WBDG.org), Grubb & Ellis, Graham & Co.