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24 Nov
Cheap Space - The money pit behind bonus CBD office space at cheap rates

By Justin Boelen 

It’s a real temptation in the commercial tenant market that exists right now to grab more space than you need, just because it is cheap.

You know how it goes . . . the landlord is offering all kinds of inducements: rent-free period, fit out contribution, lower face rent. They might even throw in a few slabs for the office Christmas party.

 This seems like a once-in-a-lifetime, rolled gold opportunity.

Wouldn’t it be great to have a big slice of prime CBD office space for little more than (relative) chump change? 

Carrot

Well, if you go for it, rest assured, the only people that are going to benefit from that in the long term is the building landlord and the property manager.

. . . And maybe lawyers representing both sides when you try to wriggle out of a lease that’s tighter than a Houdini strait jacket.

There are a few traps to watch out for if this well-baited hook is being dangled in front of you.

Principally, there are two areas to consider very carefully. The first is the draft lease and like most areas of life, the devil is in the detail. 

You can be confident that the cheap rate you have secured on all that extra space is going to be clawed back. One way or another.

Unless you take a forensic approach to the detail of the lease – before you shake hands – chances are at some point during the life of your occupancy, time or clause sensitive costs will be triggered and loaded onto your monthly invoice. 

Wants vs Needs

The most common areas to watch out for are: Rent review structures, definitions of rent reviews, reinstatements provisions, and the length of lease.

Also worth considering is the additional fitout costs and outgoings for extra space that you didn’t really need. Take a step back and ask yourself, at the end of the day, is this even the right building for me, or have I been persuaded by the sweetener? 

The other area of potential jeopardy on that extra space does require a degree of crystal-ball gazing.

It would be wise to carry out a risk assessment of external factors – ones that might be relevant to your business and/or industry.

What’s happening in the global economy? What’s happening in your industry or market? What are commentators forecasting in terms of demand for your services over the life of your new lease?

If your business is associated with, for instance, the mining sector, you might be advised to take a more prudent path with commercial space rather than with a rationalizing mindset of “I’ll be positioned with the right space for expansion once the iron ore prices returns to its glory days”. 

In the meantime, and it could be a long time, you’ll be paying for the promise of those better days.

While you might not be able to control the fortunes of your industry, you can control your business decisions. 

Get the basic decisions right: choose the right level of space that you are going to reasonably need. Maximize the productivity of the space with a workplace design that minimizes waste (under utilization).

Finally, get an expert to help you review your space requirements and negotiate your lease.

And resist the temptation just because it’s a bargain.

 

 

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