Entering the office leasing process for the first time can be extremely fear-inducing and intimidating for individuals and organizations who are not familiar with the process.
But according to Jon Milonas, first vice president with CBRE, if it is approached with a proven, systematic, set of guidelines, it doesn’t have to be.
“Taking on an office lease can be very overwhelming for those who are new to the process,” said Milonas. “But, if an organization divides the process into these six steps, it will make it much less painful, allowing them to maximize the results and avoid costly mistakes.” Milonas’s new book, “Kicking Off Your Office Lease: 6 Proven Steps to Develop a Thorough Strategy and Avoid Costly Mistakes,” outlines the six steps that he considers the foundation of a successful process. “In everything I do, I believe in bettering people’s lives by replacing fear with confidence. For office leasing, this book does just that.”
1. Identify Deficiency Drivers
Are you paying too much for your space? Do you have too little space? Is the space no longer functional? These are a few of the dozens of questions an organization should consider when assessing its current space.
“There are literally hundreds of areas that can be identified as deficiency drivers,” said Milonas. “If you find that you have a long list, or, if the few on your list are major issues, such as not enough space, you will have a much clearer picture moving forward in your search for new office space.”
2. Establish success factors
Every real estate decision should have goals and success criteria clearly defined at the start of the project. For example, is the goal to reduce annual occupancy costs by 20 percent? Is it to increase seat counts by 250 to grow employment over five years? All goals can and should be defined, prioritized, and agreed upon early in the process.
3. Envision scenarios
A new lease can bring many different scenarios. Will it entail a move to a new office? Is it renegotiating an existing lease? Is it expanding in a current location? There are many different scenarios that can come into play, and, once deficiency drivers and success factors have been established, the potential scenarios right for a transaction will be easier to identify.
4. Create a team
A successful office leasing process should involve a core internal and external team. Internally, the team should have two leaders—a strategy-oriented leader, someone who will put together the overall vision for the process, and, the action-oriented leader, someone who will be able to roll out the vision while managing the tactical steps throughout the process. On top of that, finance, HR, IT and legal will provide their expertise as needed as well.
Externally, working with a real estate advisor, architect and project manager will help the process move along much more smoothly.
“Having strong leadership in-house is critical to the process, which needs to be supported by an external team of seasoned real estate, design and construction professionals ,” said Milonas. “Think of the external team as an outsourced real estate department.”
5. Develop a schedule
Different schedules and leasing timelines apply for different organizations, which can usually be attributed to the overall size of the project. A 15-person firm that is moving to 3,500 square feet can go through the process at a much quicker pace than a large, 1,000+ employee firm looking for more than 200,000 square feet. In some cases, the latter firm in this scenario will need several years to properly run its process, while a smaller firm can achieve its goals in six months or less.
According to Milonas, there are three phases in the leasing schedule; (1) strategy development (2) market engagement and (3) design, construction and move in. Strategy development—or, defining goals—is the most challenging but most important part of the process. Once a proper strategy is in place, market engagement such as negotiating lease terms, followed by the design and construction, prepping for a move should fall right into place.
6. Set a budget
Setting a budget is perhaps the most challenging portion of the entire process. The first step is to completely understand your current lease costs. Once you have established your total current leasing costs, you will better understand the process and what your future budget could potentially be.
“When looking at a lease there are two ways to factor your costs—one-time costs and ongoing costs,” said Milonas. “It’s very hard to lock-in some of the costs early on in the process as projects change and evolve, but high-level budget estimates can be valuable as you brainstorm conceptual scenarios prior to kicking off a project. Don’t take a high-level budget to the bank based on a two-minute conversation. Roll up your sleeves and do the hard work of budget forecasting alongside your external team. ”
One-time costs include line items such as construction, furniture, moving and architectural fees, among others. The on-going costs will be items such as base rent, taxes and operating expenses and whatever utilities are not included in the base rent.