Top Hidden Costs in Your Corporate Real Estate

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Ignorance truly is bliss in some instances, how sausage is made, your favorite restaurant's "Secret Sauce," etc. But there’s nothing particularly pleasant about throwing money away at the expense of your business. If your company leases real estate, you may be unaware of some its true costs.

Lease Overpayments

Sweep your eyes across the skyline of any major city, and you’ll see dozens of shiny, high-rise buildings packed with premium office space – a lot of which is empty. In fact, most cities show a vacancy rate of 20% or more. While this presents a dire situation for landlords, it’s great news for your bottom line.

If your corporate real estate lease was signed prior to 2008, then you’re most likely overpaying by at least 30%! These leases typically only last between 5 and 10 years, so you may be on the threshold of a major savings opportunity.

Your landlord is probably very willing to quietly negotiate the terms of your lease. You may be able to secure some generous packages, including free rent or luxurious improvements. If you decide to relocate, perhaps consider moving to a more suburban location where rents can be significantly less than in the city.

Operating Expenses

Most commercial real estate leases are “net” leases as opposed to “gross” leases. Net leases require a tenant to pay some or all of the property’s expenses; such as utilities, real estate taxes, cleaning, insurance, repairs, etc.

When is the last time you really evaluated your corporate property expenses? If you’re like most people, you only give the bills a quick glance before writing out a check. Chances are, you’re paying too much for what you’re actually getting.

If possible, compare expenses with other tenants in similarly rented space. You may find some discrepancies, which may be costing hundreds or thousands each month.

Mismanaged Space

We all love our files. They’re filled with memorabilia like tax return copies and payroll reports. But do they really need cushy, air conditioned office space in a downtown skyscraper? Why not store them in a more appropriate, warehouse setting? Warehouse space is typically 2 or 3 times cheaper to rent than office space. Or better yet, shred the bulky paper and store the data electronically.

Corporate real estate lease rates are usually calculated on a per square feet basis. Take a good look at your office set up. Is space being utilized efficiently, or could divisions be consolidated? Could some employees telecommute or “hot desk”? These questions are essential in optimizing your corporate real estate portfolio.

Once space is appropriately organized, you will likely have some empty sections, which could be subleased (provided your lease agreement allows this).

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