The Art of an Office Deal in 2008
Aug 19, 2008
2008 is a challenging year for business, but in San Francisco you would not know it in terms of the office space market. Rents are still at a seven-year high and although landlords are starting to lower rental rates, tenants are still in for sticker shock as their own business is suffering a downturn.
Today the overall rental rate for San Francisco stands at $35.50 per square foot. In 2001 at the end of the dot com bust the average stood at $25.00. But before we scream “filthy landlords” we have to put today’s rental rates in prospective. In 1984 for instance, the average rental rate in San Francisco stood at $36.00 per square foot. Yes higher than today! Office space like gas has been a cheap commodity for a while now. Unfortunately, costs to run buildings and tenant improvement costs have indeed increased. In 1984 you could build out a new office from shell for $35.00 per square foot. Today you need $70.00 to build out the same space. Operating expenses for Class A office space in 1984 was running about $9.00 per square foot today its $18.00. Yes, landlords are actually earning far less per square foot today than 1984 so today’s rents are truly a bargain.
Unfortunately, like gas we got used to a good thing. We have incorporated those office rent savings over the years to improve our bottom line, but this bottom line gift did not come from our business performing better it came from our business enjoying lower rental rates.
So how do we create a new office deal to meet today’s market? First we have to review true space needs. The common rule of thumb is 200 square feet person. Is your business taking space that is more than that? Next, if your firm decides to move how will the new efficiencies that you will build into your new space make your production increase? Yes, a new phone system, new wiring, new Internet services, new copiers will improve your efficiencies and make you more competitive. Case in point our firm moved just two years ago. At the time securing a t-1 line was considered the top end standard to create connectivity in an office. Just two years later speeds as high as 100 times a t-1 is available for almost the same cost. New IP phones can lower costs over a hard wire phone lowering your phone bill. A new copier can save you money on each copy while also offering new color printing at a reduced cost.
If your lease is up you need to not only look at your possible rent increase you need to look more at how much square footage you really need, how much will I save by introducing new technology to my new space, how much can I save in square footage by better planning the layout of my new office. Today to make the best deal for your firm you cannot just look at rent you have to look at the overall cost of your move and what you can build into your new space that will make your firm far more productive.
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Written by: Hans Hansson
Hans Hansson is President of Starboard TCN Worldwide Real Estate Services as well as a member of the Board of Directors for TCN Worldwide Real Estate. Hans has been an active broker for over 23 years in the San Francisco Bay Area and specializes in office leasing and investments. If you have any questions or comments please email firstname.lastname@example.org or call him at (415) 765-6897. You may also check out his website, http://www.commercialspacefinder.com/.