Q: My small business is looking at moving into a new office. What should I consider before I decide on a space?
A: The cost of occupying space is likely one of your largest expenses. One of the first decisions to consider is whether to lease or own your space. Part of that decision will depend on how long you expect to stay in the space.
If you are thinking that you will be in your space for five years or less, or if you think the amount of space you need will change, you may choose to lease, because it will provide the flexibility to set a shorter term and have the possibility of being able to change the amount of space occupied during the lease.
Another advantage of leasing is that it is not necessary to tie up a large amount of working capital in real estate, you simply make a monthly, tax-deductible expense payment.
During 2017, landlords have succeeded in pushing rents steadily higher, but those growth rates are starting to show signs of moderating in 2018.
Landlords continue investing considerable capital to renovate and reposition properties and improve amenities. Building owners that have the best value proposition and are aggressively managing their assets to tenant demands are being rewarded with higher occupancies.
The hottest leasing markets in the Twin Cities are found in the North Loop, the Minneapolis Central Business District and the West End.
The good news for potential renters is that the forecast for space absorption is expected to be flat during the first half of 2018 due to some large blocks of space returning to the market.
Landlords will be quoting more aggressive rent rates as they try to fill vacant space. Potential tenants can also achieve better rents by considering a longer lease term and by negotiating to pay part of the tenant improvement costs for their space.
For business owners who are considering purchasing their space, strong economic and job growth continues to fuel buyer demand for office assets.
This aggressive demand is resulting in properties trading at record high prices.
As a result, many business owners are finding leasing to be a very attractive alternative.
Herb Tousley is the director of the Shenehon Center for Real Estate at the University of St. Thomas Opus College of Business.
