- Prospect: I’m looking for around 4,000 square feet of office space. Could you give me some pricing information?
- Landlord: Sure, do you have an idea of the layout?
- Prospect: Large open space for cubicles, reception, 3 restrooms, break room, conference room and a few private offices. What is the price?
- Landlord: Great, and what lease term are you seeking?
- Prospect: That likely depends on the price – what is the price?
- Landlord: What exactly is your timing:
- Prospect: Next 6-12 months, maybe sooner if you will just GIVE ME THE PRICE!!!
Glad you asked.
Assume that we have 3 vacant spaces for the above scenario, with our prospect needing 4,000 square feet:
- Space 1: 3,600 square feet, similar layout to what is desired, available in 9 months
- Space 2: 4,200 square feet, completely different layout, available now
- Space 3: 5,000 square feet, similar layout to what is desired, been vacant for 12 months
- There is currently a tenant in Space 1, and they are unsure of whether they will be renewing the lease. They have an option to renew for 3 years that can be exercised with 3 months’ notice, and their lease expires in 9 months. We cannot sign a lease for this space until another 6 months passes, and the space might be unavailable if the option to renew is exercised.
- Another prospect is looking at Space 3 and will be deciding within the next month whether to pursue this space. This specific prospect needs at least 4,500 square feet and can only lease Space 3. This prospect is also interested in signing a 7-10 year lease, so it is worth holding out another month to see what happens.
- This leaves Space 2 as the only currently available option for our prospect in need of 4,000 square feet. For a long term lease, we will remodel the space and have time to negotiate the lease and perform the renovations, since the tenant is looking 6-12 months in advance.
And the above example only dealt with office space. We also lease warehouse space, which often varies even more from space to space than office. Say we have two 5,000 square foot warehouse spaces available. One has 500 square feet of office, and the other has 2,500 square feet of office. Do you think these two spaces will have the same rental rate? Of course not!
Plus, a rental rate for a new business interested in a 1 year lease will differ from the rental rate for a national company signing a 10 year lease with substantial modifications.