The earlier the company gets started, the better the chance to drive deal economics through competition. Getting an early start on leasing can make all the difference between finding the perfect space or settling for something less. The world of today is indeed hybrid, one that many businesses are grappling with and considering changes in the office space to better improve productivity, increasing collaboration, and supporting the retention of its employees. Time will remain as one of the most vital leverage pieces a tenant can have.
When Should a Company Begin the Real Estate Process (12-18 Months):
Ideally, 12-18 months before lease expiration. This can vary depending on the size of the requirement, specialized space needs, relocation versus renewal, etc. It may sound like a long period of time, but considering the complexity of a real estate deal it goes by very quickly.
Due Diligence (1-2 Months):
Define Requirements & Timeline: It's crucial to define specific requirements, including company culture, timeline, location preferences, specialized needs, space programs, and budget. Developing a clear timeline of key dates keeps clients informed of critical milestones.
Market Research & Shortlist: (1-3 Months):
Market Research: Sufficient time for market research allows for identifying upcoming availabilities and off-market opportunities. Understanding current market trends is essential for negotiating from a position of strength.
Shortlist of Desired Properties: We provide a comprehensive overview of all available options that fall within the specific clients’ criteria. We review all options with our clients and select the best properties to tour.
Evaluation of Different Options & RFPs (2-4 weeks):
After touring, it's time to dive deeper into each option including evaluating any structural and/or cosmetic changes to each. It's not going to be perfect, and all sides expect change to the building specs before getting to a potential lease draft. We'll submit to RFPs to the top choices, ideally anywhere from 2-4 options.
In Return, those buildings will send proposals over to review. When comparing proposals, focus on both gross and net effective rates to gauge the real cost, as net effective rents consider landlord concessions. For example, the average rental rates have increased slightly year over year, but net effective rents have steadily declined since the start of the pandemic.
Counter Proposals & Build Out Specs (1-2 Months):
Negotiating counter proposals can be time-consuming but is essential for reaching favorable terms. Also, finalizing build-out specifications, including the design and finishes of the space to ensure they align with the company's vision.
Defining Build Out Specs:
Before signing an LOI, another critical item that needs agreement is not just the structural design of the space but also the finishes. Each building varies with a standard finish, but it's important to ensure those finishes align with the company's desired design. The nicer the building, the higher-end building standard finishes you can expect.
LOI & Lease Drafting (2-4 Weeks):
Following an agreement on business terms, a signed Letter of Intent (LOI) formalizes the deal's framework. This non-binding document will be utilized by the landlord’s attorney during the drafting of the lease.
Finalize & Execute Lease: (2-3 Weeks):
Upon receiving the lease, promptly forward it to a commercial real estate attorney for review. Following the review, anticipate a period of negotiation between both parties’ counsel following the review, before finalizing the lease agreement. To prevent any potential delays, it's wise to secure a signed lease at least four months before the lease commencement date.
Build Out/Early Access: (3-5 Months):
Landlords typically oversee the build-out process, which involves designing, permitting, and construction. Securing early access for installing furniture, fixtures, and equipment (FF&E) is crucial for a smooth transition to your new space.
Early Access & Lease Commencement:
Early access is not just a logistical advantage; it's a strategic necessity for ensuring your operations can begin seamlessly from day one in your new location.
By initiating the leasing process early there, tenants can negotiate from a position of strength, customize the space to match up with the requirement, and avoid the pitfalls of rushed decisions. This approach also boosts the likelihood of finding the perfect space. By understanding the importance of timing and leveraging it effectively, tenants can secure spaces that not only meet their current requirements but also offer flexibility for future growth. In the world of commercial leasing, time is more than just money—it's your best leverage.