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When the cheapest rate per square foot doesn’t equal the cheapest space

One critical sticking point I like to bring up with clients is the importance of verifying that the size of your space is truly what your lease says it is. It’s easy to understand that you shouldn’t pay for more space that what you really occupy, but that’s just the first step to ensuring you reach optimal lease terms. Next, it’s important to understand how it’s possible that “the cheapest rate per square foot” doesn’t always equate to “the cheapest space.” Here’s a situation I have seen many times in my 30-year career.

During the early phase of representing you, we prepare a space program (space summary for those of you non-architects) about your space needs. It summarizes numbers and sizes of needed private offices, conference facilities, reception areas, file/workroom areas, systems furniture areas, training rooms, etc. All these rooms are summed up, a percentage estimate for corridors is added on and we get a guesstimate of how many square feet to search for. When we narrow the list down to your favorites, we ask each leasing agent to prepare a “test fit” applying your firm’s space program to each space. Then what happens?

Let’s use the example that your space program indicates you need 25,000 square feet. Never does it lay out that way in real spaces. Buildings are dissimilar in many ways – size of floors, shape of floors, bay depths of floors – so no two buildings are equally efficient for your space program. Building A may require 29,000 square feet to fit all your space needs, while Building B may need only 26,000 square feet (about 10% less) to work. Let’s expand the example to say that Building A has a quoted rental rate of $22.50/sf and Building B has a quoted rental rate of $25.00/sf. What happens on a 5-year lease?

               Building A           29,000sf X $22.50/sf X 5 years = $3,262,500 total base rent 

               Building B           26,000sf X $25.00/sf X 5 years = $3,250,000 total base rent

As you can see, the initial guess that Building B would be too expensive is wrong because, for your space, Building B is more efficient. Put another way, sometimes the cheapest rate per square foot doesn’t mean that’s the cheapest space available to meet your needs.

It’s these kinds of analyses that we sort through every day for the clients we represent. 

Regardless of when your lease expires, contact our team to schedule a time to review your space needs and opportunities for identifying the right space at the right time on your terms.

Chris Wally