Evaluating Office Space Alternatives

by CoyDavidson on April 25, 2010

555 forge river space tour

In my earlier post “Determining your Office Space Needs”, the discussion centered on the importance of proper planning and the formulation of a real
estate brief outlining your office space requirements that serves as the framework to evaluate and compare your various property options.

Once the proper planning exercises have been conducted and the real estate brief has been prepared, you are ready to identify and evaluate viable options in the marketplace.

Inspect and Evaluate your Options

Release your brief to the market

To avoid dealing with multiple agents, have your tenant representative approach the market on your behalf. With an intimate knowledge of the market and a well-established network of agents and owners, your representative will act as a single point of contact to uncover all suitable space opportunities. Your real estate broker will also assist in discussions with your existing landlord regarding lease renewal options.

Evaluate and prepare a short list

When analyzing alternative premises, consider timing, financial and other incentives that may be offered. A lease renewal option should include expansion and contraction costs, as well as the cost of reconfiguring or completely refurbishing your work space. Once  your broker has presented a thorough evaluation of the market, aim for a short list of three or four properties.

Evaluate options against your brief, ensuring the property’s benefits match your stated business objectives. Colliers International has developed a range of decision models and matrices to assist in decision making. These tools dramatically improve efficiency in the evaluation process.

Financial analysis

There are several ways to compare the financial aspects of leasing, including:

  • Gross effective rent per square foot
  • Gross stated rent per square foot
  • Gross and net rent per square foot
  • Total occupancy cost per employee

Look beyond the square foot rate offered. Some office space is highly efficient, enabling you to accommodate your employees in less space. For example, you may require 5,000 square feet to accommodate your staff in one building while another may be able to house them comfortably in 4,000 square feet. In this instance, it does not make sense to compare the two options based on their rate per square foot. It is more effective to use a lease analysis model.

Lease conditions such as “make good” requirements can also impact on the attractiveness of a particular option.

Compare your options using a lease analysis model

I utilizes a lease analysis model designed to compare leasing options on a financial basis, using an “apples to apples” approach. The model allows the comparison of proposals from multiple lessors, demonstrating the cost of the financial offer over the life of the lease.

This financial modeling takes into account lease incentives, such as free rent or a greater allowance for tenant improvements, the total rent over the life of the lease including rent hikes, and the term of the lease including extension provisions.

Workplace design and tenant improvements

It’s not all about cost. When evaluating your property options, don’t forget to consider the intangible costs and benefits for each property option.

Your workplace designer can help you evaluate each option’s impact on staff productivity and communication, corporate identity, information technology, communications performance and your customer base. If appropriately engaged at step one, your workplace designer will have maximized their ability to positively influence the workplace brief. In today’s challenging business environment, it is critical that organizations look beyond the traditional view of office accommodation and the measurement standards normally applied. It is now a fundamental requirement that the office architecture supports the intellectual work demanded of employees and facilitates an organization’s continuous improvement strategies.

Your work space must also contribute to the development of team networks and organizational learning systems. In addition, the office systems must support organizational change efficiently, and with minimal redundancy.

Determine work space efficiencies

By conducting a design site audit of the short-listed options, your workplace designer will determine the work space efficiencies for each property. This process also produces sample tenant improvement designs prior to your agreement on terms.

This process determines your projected tenant improvement costs and will enable you to compare your options based on financial and non-financial criteria. Your workplace designer will provide the following services during this critical evaluation phase:

  • Prepare a detailed existing tenant improvement audit
  • Assess items suitable for re-use in the improved office space
  • Manage the pre-design process including a review of local authority approvals
  • and code requirements
  • Prepare selected site audits
  • Prepare a “stacking and blocking” plan
  • Prepare preliminary concept designs
  • Conduct building services audits
  • Provide an opinion of likely tenant improvement costs

Tenant improvement costs

Attaining a tenant improvement that is aligned with your organization’s ideal outcome will depend on which components are viewed as necessary and what is discarded during the design phase. It is critical that all aspects to be included in the tenant improvement are assessed to determine their contribution to the overall objectives.

Equally important is the identification and evaluation of the potential components that are excluded. The identification of positive and negative components through the audit process provides the opportunity to maximize the effectiveness of the final result and minimize the cost of the tenant improvement.

In a future post, I will review committing to the premises to include negotiating letters of intent, lease documentation and commencing the full design process.

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