Making an Informed Decision about your Office Space

by CoyDavidson on December 1, 2009

The business decision to relocate or renew your office lease is a complex process and one that can significantly impact the performance of your company.

When considering new office premises, it is critical to address the following questions:

What are my options?

Stay put: If your current space satisfies your business needs, but you are approaching the end of your lease, you may wish to consider renewing your lease. You will need to ensure the space is available, and then negotiate a new lease with the building owner through your tenant representative. However, no decision to renew your lease should be made without a thorough market evaluation and the introduction of competition for your tenancy into the dynamic of the renewal negotiation.

Relocate: The expiration of your lease could offer you an opportunity to transform your business and create new efficiencies by relocating.

Why should I relocate?

Business needs and Economic Benefit: If your current space is too small, too large, or inflexible relative to the way your organization works, a new office can energize your organization and act as a springboard for improved productivity and operational cost savings. Additionally, market conditions may create cost benefits supporting the business case for relocation.

Brand value enhancement: The quality of your building and the tenant improvements in your office space speak volumes about your organization. A renovated office space or new building can strengthen your employees’ perception of your core values and elevate your brand in the minds of customers and other stakeholders.

Employee satisfaction and retention: By repositioning your business and employees in an improved work space, you will realize increased staff morale and productivity. Our market research showed that even subtle changes in the work environment have created substantial gains in productivity, resulting in improved bottom-line financial performance.

How much will it cost?

Operational costs: The negotiation of rent and tenant incentives is dependent on the dynamics of your local market. In certain markets, the development cycle has created higher vacancy, which favors tenants. In other markets, low vacancy gives landlords the upper hand in negotiations.

Tenant improvement and “make good” costs: Your entry and exit strategy to a lease can greatly affect the real cost of your commitment. Workplace design and tenant improvement costs should be viewed as an organizational opportunity—a well-planned and executed tenant improvement will adapt to your organization’s growth and changing needs and minimize churn costs. Balancing your tenant improvement costs and the benefit it yields to your organization is critical. In addition, “make good” commitments will affect your cash flow when exiting a lease.

When should I start?

Plan, plan, and plan: Whether you decide to stay or go, knowledge is key. Allow sufficient time to ascertain your current situation, review other options, assess the marketplace context and negotiate with your current landlord to ensure you optimize the end result.

Timing: The period required once decision is made just to conduct the lease negotiation and relocation process ranges from three to six months at a minimum. Depending on the size of your organization and the current market conditions, you should prepare to begin this process 18 to 24 months prior to your lease expiration. It may take two years or more to complete the lease and relocation process; larger organizations should plan for even more lead time.

Whom should I involve?

Your internal steering committee should be led by a senior employee, and supported by decision-makers and influencers including human resources, IT, divisional heads and staff. A single point of contact from your organization, matched with a single point of contact from your real estate advisor is an ideal match to make the process run smoothly.

You may wish to conduct a survey of your staff to determine their needs, preferred work style and location.  Your tenant representative can conduct a needs analysis survey of your staff to determine the impact of relocation on commute times and employee retention.

Professional real estate advice is a critical part of the project team. This will arm you with insight into the marketplace, your alternative options and the financial implications of the stay or go scenarios. A skilled design professional and construction manager will complete the team by providing knowledge of productivity-enhancing tenant improvements.

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