Nine questions to ask before leasing office space

Artur Sutor, Partner, Head of the Office Department at Cresa Poland

Company directors should ask themselves a number of important questions before signing an office lease as answers may affect the next five or eight years of the company’s business operations, including its finances and image. Artur Sutor, Partner, Head of the Office Department at Cresa Poland has prepared the questions you should ask yourself before you delve into any further details of your office space.

1. When to start thinking about choosing an office location?

When you begin looking for your ideal location is very important. Time is of the essence, because you will need it first to explore the market, pre-select locations and then to negotiate a lease with a landlord. The more time you allow yourself for search before you actually need office space and accept proposed rents, the stronger bargaining power you will have.

Businesses looking for a large office space should start the leasing process early enough, preferably two or three years before signing a lease. As many office leases are made for approximately five years, it is best to start thinking about a new lease at the midpoint of the current lease term. Small and medium-sized enterprises need not act so early, but they also should think about moving at least 12-18 months before the ‘zero hour’.

2. Should you consider office developments underway?

Poland’s office stock is rising at a rather quick pace with new office buildings continually delivered to the market. Tenants who begin searching for an office early enough should definitely consider projects currently under construction or in the pipeline on account of proposed rents, for instance. An investor whose office project is at an early development stage is willing to sign pre-lets which will improve its credibility with banks and other tenants.

Landlords will therefore be more inclined to offer much lower rents for schemes underway and tenants are also more likely to obtain additional services and concessions. At this stage large tenants may discuss issues such as costs and positioning of a logo on an office building, reception desk fit-out, parking spaces, design of common areas and selection of catering providers.

A lease made at an early development stage or even before a project breaks ground entails some risk to tenants who, in their best interest, ought to stipulate a high contractual penalty from a landlord should the landlord fail to begin or complete a project on time.

3. Should you consider the labour market as a factor in office selection?

Many firms used to choose office locations without consulting employees. This could be much riskier today with exceptionally low unemployment and very strong demand for top talent. In addition, the work culture has also evolved and employees are ready to give up even a well-paid job if they waste too much time commuting or cannot enjoy other comforts.

Employees should be considered a priority in office selection. Good transport, an appropriate number of car and motor scooter parking spaces or bicycle stands are nowadays equally important as prestige associated with a workplace.

4. What’s the corporate impact of the comfort provided by a building and its amenities?

Leading corporations invest in employee-friendly offices where you want to be, because the interior design is attractive, you can actively spend time during a break, take care of your health and a proper diet without having to leave a building. Such investments are an additional asset to retain first-rate specialists.

Theoretically, tenants should ensure a comfortable working environment themselves, but once they know what they want, they could shift part of this burden to a landlord. For instance, a building housing a café, an elegant canteen, a seating area with armchairs and sofas or a sports or leisure space will certainly be appreciated by employees of all companies based in it.

5. What type of office space is actually needed?

This question is directly connected with the two previous ones. Office standards have changed over the last several years. Tenants now need much more space than in the past, even if they decide to turn cellular offices into open space. Too high office space density can be distracting. Making sure that an office is properly laid out is very important. An office should have appropriate places for teamwork, meetings with clients, visits of fellow workers from other departments and trainings.

Even assuming that the number of employees remains constant, a company may need more space going forward and should also make plans for potential further expansion as leases tend to be made for a period of five years.

6. Is it a good idea to conduct an audit of office space requirements?

An external audit of both office space requirements and currently leased space would be an optimal solution. Company insiders usually look at things from the perspective of the company’s current office and imagine a new one to be the same, but newer, meaning better. Meanwhile, the needs of employees and directors may have changed over the recent years and a new office could be laid out differently to ensure greater functionality.

Even an ideal design should take account of options provided by a new office. Before signing a lease it is important to know the cost of space adaption, how long the fit-out work will take and whether it will be necessary to restore the leased premises to their original condition several years later.

7. Is having two locations a viable option?

Some companies locate their headqurters in prestigious locations due to their business profile, and their back offices out of town due to lower occupancy costs, better availability of parking spaces or larger floor plates.

On the other hand some companies prefer to locate all of their functions in one place. This helps improve communication between departments and optimise office space use.

Some tenants will, however, have office space spread over several floors of an office building: second, third, fourth and seventeenth floors, for example. Top levels which are more expensive and prestigious are reserved for client meetings, while to employees it does not make much difference whether they take the elevator up to the third or twenty third floor – they are still in the same comfortable building.

8. Are neighbours relevant?

It is advisable to find out exactly who your neighbours are if you lease only a small part of an office building. Other tenants may have an impact on your business operations for a number of reasons.

Leading corporations frequently have the upper hand in negotiations with landlords. They may even demand that the landlord does not renew a lease with a minor tenant claiming their requirement for additional space.

Presence of clients and competitors in the same building is also an important factor. Some companies require contractual clauses prohibiting space lease to competitors.

9. Should we use services of a professional lease advisor?

We should actually begin with this question, but the answer to it becomes obvious once we’ve answered some of the above. Office lease is a very important financial decision whose impact on business operations will reverberate for several years. An in-depth market knowledge and attention to detail are all required to make an informed decision.

In addition to negotiations with a landlord where solid legal support is required there also are other lease-related factors at play, including relocation, office refurbishment and fit-out, workplace solutions, bringing down service charges, insurance and recruitment processes. All this is an additional burden for company directors who could assign those tasks to an experienced advisor.

It would seem that corporations with a broad experience in leasing office space could do without external help, but they never reject it. In my professional career I have never heard of any top company failing to take advantage of cooperation with a professional lease specialist.

It is therefore advisable to hire an advisor. Many advisory firms are involved in various aspects of the real estate market. Bearing this in mind, it is best to look for an advisor who will represent a tenant only and has no contractual obligations with any landlords to avoid conflicts of interest.

Source: Cresa Poland

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