Finding the right amount of space, the ideal location, and an inspiring aesthetic to keep employees motivated can be a tall order when hunting for Office space in Manhattan. Planning to Wealth sat down with Paul Sosa, a commercial real estate expert with Redwood Property Group, to answer top questions from Business Owners looking to move office locations and ready for a change of scenery.
1. What’s the Manhattan office leasing market look like right now?
The office market is slower compared to last year, and there's approximately 12% of office space available now in Manhattan. The most active tenants are in the Financial Services, Insurance, and Real Estate (FIRE) industries, followed by the Technology, Advertising, Media, and Information (TAMI) sectors.
2. What areas of Manhattan are hot right now? Which areas are stagnant? What do prices look like?
The hottest locations are Midtown, Union Square, Financial District, and areas near subway stops and massive public transportation hubs like Plaza District, Grand Central, Times Square, and Penn Station. The stagnant locations are locations far from subways, like the most eastern or western edges of Manhattan.
The average Manhattan asking price is about $72 per square foot per year. However, prices vary a lot between Midtown ($77 per square foot), Midtown South ($79 per square foot), and downtown ($61 per square foot). Office space also varies greatly by building type, such as class A buildings ($60 and up), class B buildings ($48-$60), and class C buildings ($35-$50).
When evaluating pricing, it’s important to prioritize either location or building class. For instance, you could get a Financial District class A office space at the price of a Midtown class B office space rate.
3. What are some things business owners should be aware of when starting to look for office space?
Business owners should get familiar with the market and understand approximately how much square footage would fit their needs. If they need to relocate, they should look at all the move-out provisions they have signed in their current lease to make sure they won't have unexpected move out expenses.
4. How should business owners get ready to look for space?
Preparation is key. Business owners should have all of the financials organized, as well as enough funds for first month's rent and three to four months of the security deposit. They should prepare for expenses like moving, insurance, office furniture, and also have additional funds in reserve to illustrates their financial strength to a potential landlord. If not, the landlord may reject your application or may ask for a larger security deposit. A business owner should also think through in advance what type of office layout works best for the company based on their needs.
5. What are some mistakes business owners make when looking for space?
Many business owners waste their precious time searching and visiting all the wrong locations or contacting multiple brokers, which results in many of these brokers showing the spaces the owner has previously seen. My advice is to hire an experienced commercial leasing agent that knows the market inside and out and will provide all the necessary supporting information about any desired space.
6. What are some things business owners should be aware of when negotiating with a landlord?
Make sure they negotiate everything that is open for negotiation, including the rent rate, security deposit, months concession, term, increases, landlord’s build-out, tenant’s requirements, business hours, building charges, etc.
7. What provisions are most important in the lease document?
In my opinion, the most important provisions are the restoration provisions, holdover provisions, good guy clause or guarantee, lease extension options, and the landlord’s right to show.
8. What are some mistakes business owners make when negotiating with landlords?
Landlords know their leases well, they negotiate them all the time, and of course, they are always looking to maximize profits. One of the major mistakes I see is business owners not hiring a commercial real estate attorney to review leases to make sure that all the negotiated terms are included in the lease. There can sometimes be additional landlord profit centers in the lease that were never discussed. Overall, an attorney can help add things like a “good guy clause” contingency.
9. When should a business owner consider getting dedicated space over a co-working space? When does co-working space make more sense?
Co-working space makes sense if you’re starting a new business, or you are a small business with five employees or less and you are not sure if you are going to grow. Rents are around $140 per square feet, they have flexible month to month terms, and they include office desk services and amenities.
Once you see that you are growing your business above five employees, then it probably makes sense to get a direct lease. Asking rents can be as low as $35 per square foot and up -- it all depends on the types of business and the requirements you need for your business.
David Flores Wilson, CFP®, CFA, CDFA®, CCFC is a New York City-based CERTIFIED FINANCIAL PLANNER™ Practitioner & Wealth Advisor at Watts Capital. He can be reached at [email protected]