Commercial Leasing vs. Private Office Space
You’ve worked very hard to grow your business from your home office, and now you’re ready to move into a traditional office suite of your own. The office building has a prestigious address in a prime business location. With just the right floor plan and decor the space will upgrade the company’s image and project success to customers and staff.
But finding the ideal office space to lease isn’t as easy as it might seem. There’s much more involved in finding the perfect office than driving around town, previewing space, and signing on the dotted line.
Here are three things about signing a commercial office lease that every small business owner should know.
Common types of commercial office leases
Leases for commercial real estate and office space fall into three general categories:
Gross office leases
Also known as a full service lease, a gross lease includes almost everything in the monthly rent including utilities, janitorial service, and building operating expenses. Signing a gross lease for office space can be good because the tenant knows what the rent expense will be each month.
Modified gross office leases
This type of lease includes some things, but not others, in the monthly base rent. The details of what is and isn’t included vary from one building owner to another. For example, if there is a separate meter for water or electricity, then the landlord will usually ask the tenant to pay for those services directly.
Net office leases
Also known as NNN or triple net leases, a net lease for office space is the opposite of a gross lease. Net leases don’t include any ‘extras’ in the monthly rent. Established businesses that have consistent cash flow sometimes prefer net leases because they have complete control over utility and other office expenses.
Hidden costs of leasing commercial office space
Small business owners signing a lease for office space sometimes forget to read the fine print. Then, after the lease is signed, sealed, and delivered, they’re surprised to discover the extra costs in their commercial lease.
For example, if a lease includes utilities, does that mean that all utilities are included or only water and electric service? Paying extra for internet and telephone service can add some significant unexpected monthly expenses.
CAM, or common area maintenance, is another charge in an office lease that small business owners sometimes overlook. Costs that the landlord pays for maintaining the property – things like landscaping, janitorial service, property management fees and building insurance – are passed through to the tenants based on their share of the total building space they’re leasing. Even when CAM is included in the monthly rent, the charge is ‘trued up’ at the end of the year and any underpayment is charged to the tenant in one big lump sum!
TIs and furniture and fixtures require cash that could be put to better use
Paying for TIs (or tenant improvements) to put up interior walls, duct work and lighting fixtures, painting and carpeting, and buying stylish furniture is expensive. And it reduces the amount of cash that can be reinvested in a growing small business.
Sometimes landlords offer ‘free rent’ in exchange for TIs by extending the length of the lease, or by adding any tenant improvement expense paid for by the landlord onto the monthly rent. But one way or another, the small business tenant ends up paying more, because there’s no such thing as a ‘free lunch’ . . . or free rent.
Are traditional commercial office leases the right choice for a small business?
In today’s competitive business environment many small business owners, start-ups and solopreneurs are discovering that signing a traditional commercial office lease simply doesn’t add up. That’s why more and more small businesses – and even Fortune 500 companies like Google, Microsoft, and Starbucks – are renting coworking office space.
Co-working office space gives small business owners stylish, turnkey, full service office space at a very affordable monthly rate:
Prestigious business address and location for the perfect business image
Professionally staffed reception area for greeting clients, mail and package delivery
Nicely decorated shared work space, dedicated desks, or private offices
All utilities, including fiber optic Wi-Fi and phone service
Flexible membership terms as companies scale up or down
Over the next three years more than 1 million people will be renting co-working office space in the U.S. alone. With all of the benefits that co-working space offers it’s easy to understand why so many businesses are choosing offices to co-work in.
Is co-working office space the right choice for your small business? There’s only one way to find out: Contact us today to schedule a no-obligation tour of Office Evolution Folsom