Office Space Leasing FAQ
- How Is Commercial Office Space Rent Calculated?
- How Much Office Space Do I Need?
- What Are The Most Common Types Of Commercial Office Space Leases?
- What is a Percentage Lease?
- What Are The Class Designations Of Office Buildings?
- What Are LEED & Energy Star Certified Buildings
- How is Commercial Office Space Floor Area Measured?
- Commercial Real Estate Associations.
- How To Negotiate A Commercial Office Space Lease.
- What To Know About the Atlanta Coworking Movement
How Is Commercial Office Space Rent Calculated?
Rent Per Square Foot Example - A 2,500 square foot office space has a rent of $22.00 per square foot. 2,500 SF X $22.00 = $55,000 per year for rent. To obtain the monthly rental rate in this example divide $55,000.00 by 12 months to get the monthly rental rate of $4,583.33/month.
How Much Office Space Do I Need?
The general rule of thumb is to allow 75 to 250 usable square feet per person depending upon the type and style of the business. This figure can vary depending on the type of workstations utilized. For instance, a business that utilizes cubicles may only need an average of 75sq.ft per person or less. The primary factor in determining how much space you will need to house your business is the number of people that will occupy the space. The general rule of thumb is to allow 175 to 250 usable square feet per person depending upon the type and style of the business. This figure can vary based upon special needs such as extra-large conference rooms or storage requirements, but will include normal amenities within a general use office. Make sure when analyzing the space to differentiate between the usable area and the unusable area. For instance, support columns, the buildings riser closet & the buildings mechanical room are examples of unusable space. The following standards can be used to help estimate the amount of usable space required for your business:
- President's office or Chairman of the Board - 250 to 400 sq. ft.
- Vice-President' s Office - 150 to 250 sq. Ft.
- Typical Executive' s Office - 100 to 150 sq. Ft.
- Partitioned Open Space | Clerical Supervisor or Manager - 80 to 110 sq. Ft.
- Open Space | Clerical or Secretary - 60 to 110 sq. Ft.
- Conference Rooms - 8 to 9 sq. Ft. per person - theater style | 25 to 30 sq. Ft. per person - boardroom seating.
- Mail Room - 8 to 9 ft. wide with 30" counters on either side. Length depends upon amount of usage.
- Reception Area - 125 to 200 sq. Ft. Receptionist and 2 - 4 people | 200 to 300 sq. Ft. Receptionist and 6 - 8 people.
- File Room - 7 sq. Ft. per file with a 3' to 4' aisle width.
- Corridors - 20% to 30% of the total usable area.
What Are The Most Common Types Of Commercial Office Space Leases?
- In a Gross or Full Service Gross Lease the rental rate includes the normal building standard services which are provided and paid by the landlord.
- In a Single Net Lease the tenant pays the base rent and a pro-rata share of property taxes.
- In a Double Net Lease two additional costs are added to the base rent of the tenant. These costs include the tax and insurance costs incurred by the landlord.
- In a Triple Net Lease the tenant pays the base rent, a pro-rata share of the property taxes, a pro-rata share of the building insurance, and a pro-rata share of the buildings common area maintenance.
- Modified gross (MG) leases are a hybrid of the gross lease and net lease as the operating expenses are both the landlord and the tenant's responsibility. With an MG lease, the tenant covers expenses directly related to their unit such as utilities, janitorial and other expenses. The exact details can vary and must be specified in the lease.
With any lease always read it carefully and don't assume anything. It is critical to understand what you will actually owe each month once the contract begins as this directly affects the operational overhead of your company. You don't want any unexpected cost increases due to energy costs, taxes, janitorial service and upkeep. Always ask for clarification on anything you don't understand. Lastly, always ask to negotiate anything in the lease you don't like.
What is a Percentage Lease?
Some landlords determine a base rent that is the absolute minimum due each month. Then, they have the tenant pay a percentage that is tied to income in addition to the base rent. A percentage lease is more common in retail than office space. However, motivated office space landlords will also consider a percentage lease if they are having a hard time leasing the space. The two most common ways a percentage lease is calculated are:
- Minimum base rent + a percentage of income over a set level of income.
- Minimum base rent + a percentage of all gross income.
What Are The Class Designations Of Office Buildings?
- Class A buildings are aesthetically pleasing inside & out and can demand higher rents. For instance, the finishes in a Class A building such as the flooring, lighting & wall coverings will be top notch. Class A buildings are also large and usually multistory. Class A buildings also have amenities ranging from on-site gym, restaurants & plush outdoor courtyards. The range of amenities in a Class A building can vary widely but the common feature will be that they are all high quality. Class A buildings will also have modern systems such as security in place.
- Class B buildings are still fairly nice but more affordable than Class A. If your business does not have to maintain a prestigious image then Class B can be a great value with lower rent rates than class A.
- Class C space is functional & the rents are low for the area. If the aesthetics of the building don't matter to you then Class C may be an option.
What Are LEED & Energy Star Certified Buildings?
- LEED stands for leadership in Energy and Environmental Design. LEED is a green building rating program by the U.S. Green Building Counsil. The LEED rating program rewards credits based on characteristics of sustainability within the building. One hundred potential credit points are dispersed across six credit groupings including location and transportation, materials and resources, water efficiency, energy and atmosphere, sustainable sites & indoor environmental quality. As many as ten additional points can be merited for innovation in design (6 points) and regional priority (4 points). Points are distributed based on capability of excellence; extra points are earned for achievements with the smallest ecological effect and maximum human advantage. If the building has between 40 & 49 credits they are granted a simple LEED certification. LEED Silver & Gold certifications are 50-59 & 60-79 credits correspondingly. The LEED Platinum certification is awarded to buildings with 80 or more points. For additional information visit https://www.usgbc.org/leed.
- Energy Star is a voluntary program, created by the EPA in 1992 to inspire environmental stewardship in homes and businesses. In order for a business to meet the requirements for Energy Star, it must pass the Green Business Program Standards for the three year acknowledgment period. The criteria are based on five sections: general, waste, energy, water, and pollution. They indicate that a green business must do things like: display signs that inspire conservation, purchase paper products with the maximum post-consumer waste (PcW) recycled content, and remove the dispersal of bottled water for employees and guests. Because most large office buildings pay attention to things like water and waste, Energy Star is a priceless rating to watch for when you are considering leasing a floor in an office building. A typical Energy Star Certified office building uses 35% less energy than similar non-certified office buildings. The EPA states that the top 10 cities with the most Energy Star buildings have saved $1.4 billion in costs. Subsequently, green buildings use fewer noxious cleaning products, inks, paper and building materials, which results in a healthier work atmosphere for you and your employees.
How is Commercial Office Space Floor Area Measured?
The purpose of the Standard Method For Measuring Floor Area in Office Buildings is to permit communication and computation on a clear and understandable basis. The BOMA (Building Owners & Managers Association) standard has been the generally accepted method for measuring office space for many years. It should be noted that this standard can and should be used in measuring office space in old as well as new buildings. It is applicable to any architectural design or type of construction.
- Usable Area - This method measures the actual occupiable area of a floor or an office suite and is of prime interest to a tenant in evaluating the space offered by a landlord and in allocating the space required to house personnel and furniture. The amount of Usable Area on a multi-tenant floor can vary over the life of a building as corridors expand and contract and as floors are remodeled. Usable Area can be converted to Rentable Area by the use of a conversion factor. The Usable Area of an office shall be computed by measuring to the finished surface side of the office side of corridor and other permanent walls, to the center of the partitions that separate the office from adjoining Usable Areas, and to the inside finished surface of the dominant portions of the permanent outer building walls. No deduction shall be made for columns and projections necessary to the building. The Usable Area of a floor shall be equal to the sum of all Usable Areas on that floor.
- Rentable Area - This method measures the tenant's pro-rata portion of the entire office floor, excluding elements of the building that penetrate through the floor to areas below. The Rentable Area of a building is fixed for the life of a building and is not affected by changes in corridor sizes and configuration. This method is therefore recommended for measuring the total income producing area of a building and for use in computing the tenant's pro-rata share of a building for purposes of rent escalation. The Rentable Area of floor area shall be computed by measuring to the inside finished surface of the dominant portions of the permanent outer building walls, excluding any major vertical penetrations of the floor. No deduction shall be made for columns and projections necessary to the building. The Rentable Area of an office on the floor shall be computed by multiplying the Usable Area of that office by the quotient of the division of the Rentable Area of the floor by the Usable Area of the floor resulting in the R/U Ratio.
- Load Factor - The Load Factor is the percentage of space on a floor that is not usable, expressed as a percent of Usable Area. It is also known as the Common Area Factor or the Loss Factor.
Commercial Real Estate Associations
- American Land Title Association (ALTA)
- Appraisal Institute (the MAIs)
- Association of Foreign Investors in Real Estate (AFIRE)
- BOMA International
- CCIM Institute
- CoreNet Global
- Counselors of Real Estate (CRE)
- International Real Estate Federation (FIABCI-USA)
- National Association of Industrial & Office Properties (NAIOP)
- National Association of Real Estate Investment Trusts (NAREIT)
- The Real Estate Roundtable
- National Association of Realtors
- REALTORS Land Institute (RLI)