December 15, 2005
8 questions office tenants should be asking
By SUZANNE BAUGH
The Staubach Co.
Officespace.com shows vacancy rates in the Seattle CBD one year ago were 16 percent including subleases and today they're 12 percent. In the Bellevue CBD, vacancies at the end of 2004 were 10 percent including subleases while today they're 7.5 percent.
Rental rates have increased as well but less dramatically in Seattle than they have in Bellevue. Average rental rates in the Bellevue CBD are up nearly 6 percent since last December; however, at least one Class A building in downtown Bellevue is getting rates close to $35 per square foot and has its sights firmly set on the $40 level. Other Class A buildings will follow as quickly as possible.
In a heated market such as this where rental rates seem to increase on a monthly, if not weekly, basis and landlord concessions diminish just as quickly, it's hard to focus on issues other than rental rates, tenant improvement allowances, and extension and expansion options. It is critical, however, that tenants broaden the criteria they use in making a final building decision to include such questions as who's the owner and how do they treat their tenants and maintain their buildings.
Here are a few additional points to consider:
1. Who is the landlord?
Does he or she have a good reputation? It is simply impossible to address every issue in a lease document that may come up over the course of a 5- or 10-year lease. If the landlord is not fundamentally honest and does not act in good faith, your company's stay at that building will be a series of unfortunate events and you'll be worn out by the end of the lease.
2. How is the building maintained?
Someone in your office will probably interact with property management people several times a week on small, medium and large issues. You need to know where the property management office is located. In a Class A building, you shouldn't have to wait more than a few minutes to have a building engineer check the HVAC because it's too hot or cold, or have someone from building maintenance replace a light bulb.
Remote property management looks good on paper but it is quite unsatisfactory in practical terms. Janitorial standards are also important. How clean is the building? Look at restrooms, the elevator track and lights in common areas. You're paying to be in a Class A building and it should be clean and look great.
Look at the cleaning specifications and make sure they are sufficient to get the job done. In the last few years, one large property owner changed its cleaning spec and several tenants mentioned that the buildings are not as clean as they should be.
Deferred maintenance can also be a problem. How do the common areas look? In a Class A building, carpet should be replaced every few years.
3. How is equipment maintained; Is staff qualified?
A preventive maintenance program for all equipment is essential. Equipment such as fire pumps and generators that aren't tested on a regular basis often fail during real emergencies. Examples include emergency lighting that doesn't work during a power outage; fire doors that don't close when an alarm goes off; emergency generators that run out of diesel; and elevators that don't respond properly in an emergency.
Often inadequate preventive maintenance is a result of an unqualified engineering staff. A Class A building must have enough qualified engineers to maintain the building properly. Some owners scrimp on the engineering budget and hire predominantly junior people at lower wages. They can't do the job properly. Frankly, it's not in your best interest to have an unqualified staff handling the building.
4. What amenities are available?
Companies are finding more and more that the services and amenities available in a building have a direct effect on their ability to recruit and keep quality employees. Also, as parking within a building or in a downtown area becomes more expensive, proximity to good transit services is a real plus.
5. What's the size of the building?
Will you have enough room for expansion as the company grows? If you choose a building that offers you a great rental rate but has inadequate space to accommodate growth, your company will be forced to pay the cost of relocating sooner than you may have anticipated. You may also have to sublease your space and that is almost never financially favorable for the sub-landlord.
6. What is the tenant mix?
While employees dress more casually now than they did 10 years ago, if the people in one company wear white shirts and regimental striped ties and the game developers down the hall wear shorts and sandals year round, one of the companies may decide a particular building isn't the right image for them. While this possible clash of cultures is less noticeable these days, it still should be considered.
7. How is the infrastructure?
How many zones per floor are there? The more zones, the greater individual comfort. How is temperature controlled? Computerized or other. Do you pay for after hours HVAC and, if so, can you activate sections of a floor instead of a whole floor or the whole building? The cost is significantly different.
What's your company's energy use versus other tenants'? If others in the building are very high users and yours is very low, you'll subsidize the high users because everyone pays a share of electrical cost based on square footage. You may want to individually meter your floor if your use is significantly less than others in the building.
How much 24-hour lighting, including decorative lighting, is there? You pay for it. And electricity shouldn't be used as a profit center. The landlord can charge actual cost and may add "wear and tear."
8. What about life safety?
Is there a card key system so that access to the building and to your floor can be controlled? Are there roving guards day and/or night? Are there fire drills and is earthquake preparedness information readily available? We all hate fire drills but, if there's a fire, you'll want to know how to get out of the building in a hurry.
Of course there are many other issues to consider when deciding which building best meets your company's requirements. This list is just a beginning. It may seem like more than you've ever wanted to ask or know about a building, but these are the issues you will deal with on a daily basis long after you move into a building. For all practical purposes these points are probably more important than most of the issues dealt with in the lease document.
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