Commercial Office Rent: Mistakes to Avoid
Moody’s/REAL National Office Properties Index which measures annual transactional volume in the commercial real estate asset classes has reported a 4 percent increase in office prices in the second quarter 2009 compared with the first quarter 09.
One of the best decisions I ever made was to purchase an office condo. As a property manager and landlord, I don’t mind having mortgage debt as long as someone else pays the mortgage. Why not apply the same concept with a commercial office. I own two separate commercial office condos that are about 1,000 sqft. each. We sublease 50% of the space to our mortgage broker, attorney, and real estate sales agents. Our office condo has a dedicated conference room, and a shared reception area, bathroom, and kitchen. Our tenants use the conference room by appointment, and we offer free usage of our fax machine, printer, and digital scanner/sender. Hi-speed internet is included, and our tenants setup a separate phone line or VOIP system through our internet connection. Our phone system also supports multiple companies with separate business lines offering full voice mail and voice attendant.
The monthly cost of renting an office will vary in cost depending on location and your local market. Renting an equivalent office in our market would cost $1,500-$2,000 per month after paying rent, internet, phone lines, and utilities. If the lease is a triple net lease requiring you to pay property taxes, it can be even more costly. There is a huge demand for small business owners needing to lease a small commercial suite to conduct business or meet customers. Many small businesses can’t afford the overhead cost of leasing a larger office. Many businesses compliment a property management firm. Consider subleasing to a real estate attorney, sales agent who works with an investment group, insurance agent, mortgage broker, or contractor.
Take the time to honestly evaluate your choices and evaluate your personal and professional state of affairs before making a down payment on a piece of retail space for rent for your organization.
Corresponding with office rate increases will be the tightening of supply as very few new office buildings have been built in the last 18-24 months. As tenants begin to re-focus their attention on growth and hiring for that growth, occupancy will see increases simultaneously with limited supply which in turn will see rising rates.
Rent increase, while minimal at this moment, will have impact on the pre-existing mind-set of recession-era companies who maintain a belief in bargain hunting. With building owners now clearly showing they have limits in their borrowing power to satisfy hungry tenant improvement needs, tenants may find the right buildings increasing in rent while the wrong buildings languish. The slow movers in lease rates do, however, play a key role in accommodating lower-end tenants as they move up in quality.
Knowing when to list commercial retail space for rent is just as vital as knowing when to obtain it. Whether you are expanding your organization, need additional space or have realized that it’s time to relocate, planning the sale of your commercial retail space for rent when the market is right will save you a great deal of funds. If you need to sell when the market is down you’ll most likely have to lose money on the transaction.
I encourage property managers to consider making the investment to purchase an owner occupied office and sublease to business professionals. Not only can you have a free office, you may generate business leads from your business tenant relationships.
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