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Cresa Blog

A Timeless Commercial Real Estate Question: Should I Stay or Should I Go?

August 2, 2017 | by Gabriella Parra, Drew Peace

Many tenants only look at their face rental rate when evaluating whether or not they have a "good deal," but that's simply the "tip of the iceberg."

Although no relation to commercial real estate, The Clash rock group posed the question in 1982 of whether they should stay or go; many of our clients pose the same question. This question arises every five to ten years, depending on the length of their lease.  The answer is based on many factors- financial--operational, and cultural, to name just a few. One important factor is the ever-changing office market, which in some cases favors the tenant, and in others favors the landlord.

Regardless of the answer, it is important for tenants to be proactive and seek favorable lease terms well before their lease expires.  Whatever the market dynamics, your decision to stay or go can mean the difference of millions of dollars.

To help you perform due diligence, here is a checklist of considerations:

  • Location.  If your present location doesn’t work, your decision should be easy.  When evaluating alternative sites, consider recruitment needs, commute patterns, proximity to customers and public transportation, building amenities, alternative office opportunities, and local services. Stability and track record of competing landlords, surrounding amenities and live/work/play are also valuable considerations during this process. Additionally, consider if your competition is nearby or in one of the buildings you are considering for relocation; is being near your competition a good or a bad thing for your business?
  • Convenience.  Despite the potential benefits of new space, some companies have a hard time enduring the headache and disruption of a move.  Consider this tradeoff as well as plans for swing space or phased-in moving, in addition to layout reconfiguration to allow for the continuity of work. 
  • Rent.  This involves more than a comparison of face rental rates.  Newer office buildings tend to be significantly more efficient, resulting in fewer square feet to accommodate your needs. They may also have more common area facilities for conferences or events.  Also, consider such incidentals as parking and energy costs, which  are consistently increasing, especially in central business districts.
  • Work Environment.  A new office environment is designed to improve productivity and help in recruiting and retention. Consider how new workplace strategies can improve culture and collaboration (open offices vs private offices). Additional considerations  are how the office space you choose will impact your employees’ wellness and happiness. But how much would it cost to renovate existing and prospective space?  Do you just want new paint and carpeting, or a complete buildout, which can run between $30 to $60 per square foot (and rising)?
  • Furniture.  Should you buy or lease new furniture or keep what you have now?  Whether you stay or go, the cost of new furniture and workstations can run between $15 to $25 per SF.
  • Technology and wiring.  The need for ubiquitous connectivity is paramount.  Consider videoconferencing and technology tools for virtual workers.  What about your bandwidth requirements?  What data providers are available at your current and other buildings? Do they provide the level of speed required to run your daily operations? If you need to install new cabling for voice and data transmission, plan on spending between $2 and $5 per SF.
  • Telephone.  For an upgraded system, expect to pay $2 to $5 dollars per SF, depending on capacity and features such voice over IP and integration of voice and data. 
  • Moving.  Expenses include not only the cost of the mover but also new business cards, letterhead, envelopes, other stationary, signage (if not included in landlords cost), potential downtime during the actual move, etc.

Although moving expenses may seem very costly on the surface, many of these expenses can be absorbed or offset by a landlord through tenant improvement allowances and rental abatement at the beginning of a new term. Additionally, relocating can help your business attract new talent, refresh your brand, or simply create more efficient space, lowering your occupancy costs in the long run. 

Whether you decide to stay or go, you still need to negotiate the best deal and protect your interests.  Perform due diligence to study market conditions and different service providers. A firm that specializes in tenant representation and project management, like Cresa, may be your best bet.

At Cresa we encourage our clients to look at the whole picture and not just focus on the rental rate. Will your new lease provide you with the necessary flexibilities for adding new space when needed under a Right of First Refusal or other built-in expansion options? Alternatively, will your new lease provide the flexibility to downsize or sublease if you happen to lose a large contract or simply decide that your employees may work remotely? In addition to flexibility, will your new lease provide the right for you as a tenant to audit your operating expenses, should you suspect your landlord may be overcharging or erroneously charging you as a tenant?

Overall, many tenants only look at their face rental rate when evaluating whether or not they have a “good deal,” but that’s simply the “tip of the iceberg.”