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The 5 pitfalls of signing a discounted office space lease

Kane Willmott CEO of iQ offices

The office industry is in the midst of its biggest shake-up in decades. According to research from JLL, the leases on nearly 900 million square feet of office space in the United States alone are set to expire by 2025.

And when they do, the businesses that previously held them are going to have a choice to make: lock into a new, long-term traditional office lease or explore newer and more innovative options.

Understandably, the owners of traditional office spaces are feeling uneasy about this. After all, in the past few years, many organizations have begun letting go of their traditional leases. And in response, many landlords have started offering significant incentives for tenants who sign new leases.

But while discounted traditional leases may look good at face value, all that glitters isn’t gold.

So, if your business is among those coming on the end of your lease and debating what to do next—or if you’re currently in the market for a new office space—it’s important to carefully weigh your options.

4 incentives you might be offered for signing a traditional office lease

If you’re exploring a new lease on a traditional office space or considering renewing your existing one, there are a few incentives you may be offered.

1. Rent concessions

Landlords may offer you rent concessions, such as reduced initial rent or a few months of free rent based on the number of years you’ll be signing on for.

2. Tenant improvement allowance

A tenant improvement allowance is a monetary contribution from the landlord towards customizing and renovating their office space to suit your needs. This allowance can cover a portion of up front costs like new partitions, flooring, painting, and other alterations to the space.

3. Free parking

If you’re offered free or discounted parking spaces, it can seem like an attractive incentive, especially in urban areas where parking can be costly and challenging to find.

4. Free space plan

For companies with unique spacial needs or those that want to create a specific work environment, landlords might offer a free space plan that allows the tenant to customize the design and layout of the leased office space to meet their specific needs and requirements.

This can include decisions about office layout, partitioning, room configurations, and the placement of amenities like cubicles, meeting rooms, kitchen areas, and more.

The 5 pitfalls of discounted traditional office leases

While all of these incentives and concessions might be attractive at a glance, it’s important to look deeper into their real value given the length of your lease term, the amount of money you’ll shell out during that time, and what you might sacrifice as a result.

1. Long lease terms

Traditional office leases often come with long-term commitments—typically ranging from three to ten years.

And here’s where it gets sticky.

What happens if your organization experiences growth or encounters unforeseen challenges that cause your needs to change? The plethora of subleases currently on the market are examples of companies bearing the financial and operational burden of space that no longer fits their needs.

Breaking a lease early can be expensive and may result in legal costs and complications—if it’s even possible at all.

2. Inflexibility

Considering the previous point, what is the opportunity cost to your business if you lack flexibility in your lease?

The potential ramifications of diminishing your operational agility are incalculable.

Being in an inflexible office lease can restrict your ability to adjust to changing business conditions, scale up or downsize, and adapt to new business realities or market shifts.

3. Lack of exit options

If your company does find itself needing to break free of its lease, your options are incredibly limited in a traditional workspace arrangement.

These leases often lack provisions for early termination or restrict the abiliy to sublease. And, when you are able to do so, there’s a good chance you’ll find yourself up against significant costs to engage a broker to find you a subtenant, in addition to discounts and, lost up front costs and fees and penalties paid to the landlord.

4. High costs and additional fees

Let’s say you take the free rent concession offered by a traditional office landlord. What is that really worth compared to the multiple years you’ll be locked into your contract? How much will your lease still cost you, even with the free rent?

More importantly, what other costs and fees might you bump into during your tenancy?

You may be on the hook for undefined increases in maintenance fees and repairs, property taxes, insurance, utilities, and more.

5. Subpar amenities

Think beyond your own office suite. What else do you get for your monthly rent?

In many traditional offices, your workspace experience stops when you walk out of the door to your own space.

But in a professional landscape where employees demand more from the companies they work for, the office now needs to be a place where they want to be, not just somewhere they have to be.

And that’s why it’s essential that they have access to amenities that make their days more convenient and enjoyable.

Flexible workspaces often provide amenities that are far superior to those offered by traditional offices because they’re funded and shared by multiple different companies.

Why flexible office agreements are more favourable for your business

Unlike traditional office leases, serviced flexible office spaces offer you turnkey private offices and office suites with shorter agreements and flexible terms.

That means you can get the space you need when you need it with limited up-front costs, all while maintaining optimal operational agility.

Flexible, serviced workspace allows your company to have workspace that works for your company, allowing your team to focus on their core competencies without distraction.

If you’d like to find out whether a flexible workspace might be a better option for your business than a traditional office lease, book a tour of your local iQ Offices location today.

Kane Willmott is the co-founder and CEO of iQ Offices, the largest independent Canadian-owned co-working operator with offices in Ottawa, Toronto, Montreal and Vancouver. iQ Offices provides beautiful office spaces with safety, service, privacy and design at the forefront.