Commercial real estate is a complex and ever-evolving industry, especially when it comes to office spaces. As a business owner or entrepreneur looking for the perfect office space, it’s essential to understand the terminology used in commercial real estate. This knowledge will not only help you navigate the market but also ensure that you make informed decisions for your business.
In this blog, we’ll dive into the world of commercial real estate terminology for office spaces with insights from our team at Daniels Greer Commercial Real Estate, a leading agency in Tulsa, Oklahoma. By the end of this blog, you will have a better understanding of key terms and concepts in commercial real estate and be better equipped to make strategic choices for your business.
What is Commercial Real Estate?
Commercial real estate refers to properties that are used for business or investment purposes. This can include office buildings, retail spaces, industrial properties, and more. In contrast, residential real estate mainly deals with homes or apartments for personal use.
Understanding Commercial Real Estate Terminology
In the world of commercial real estate, there are several terms that are commonly used to describe different aspects of office spaces. It is vital to have a good grasp of these terms in order to navigate the market effectively. Let’s take a closer look at some of the most important ones.
Office Space
Office space refers to a commercial property used for businesses, organizations, or individuals to conduct their daily operations. This can include anything from single-office units to large multi-story buildings. The size and type of office space required can vary depending on the needs of the tenant.
Lease
A lease is a written agreement between a landlord (property owner) and a tenant (renter) that outlines the terms and conditions of renting a property. In commercial real estate, leases are typically long-term contracts ranging from 3 to 10 years, with options for renewal. Leases also specify the rent amount, payment terms, and responsibilities of both parties.
Rentable vs. Usable Square Footage
Rentable square footage (RSF) is the total area of an office space that can be rented by a tenant. This includes not only the usable square footage (USF) but also a portion of common areas such as lobbies, hallways, and restrooms. The usable square footage refers to the actual area within the walls of a tenant’s space that can be used for their business operations.
Triple Net (NNN)
Triple net, also known as NNN, is a type of lease where the tenant is responsible for paying all property expenses including taxes, insurance, and maintenance. This type of lease is commonly used in commercial real estate and can be beneficial for both landlords and tenants, as it allows for more predictable expenses.
Gross Lease
A gross lease is the opposite of a triple net lease, where the landlord covers all property expenses and includes them in the rent payment. This type of lease is more common in residential real estate but can also be used in commercial properties, especially for smaller office spaces.
Tenant Improvement (TI) Allowance
A tenant improvement allowance is a monetary amount provided by the landlord to the tenant for making necessary improvements or renovations to the office space. This can include anything from painting and flooring to installing new fixtures or walls. The TI allowance is typically negotiated as part of the lease agreement and can vary depending on the condition of the office space.
Concessions
In commercial real estate, concessions refer to any incentives or benefits offered by the landlord to attract potential tenants. This can include things like free rent, reduced rental rates, or tenant improvement allowances. Concessions are often used in competitive markets and during negotiations to make a lease more attractive to prospective tenants.
Build-Out
Build-out refers to the customization and construction of interior space within a commercial property. In the case of office spaces, this could include partition walls, flooring, lighting, and other features specific to the needs of the tenant.
Common Area Maintenance (CAM) Fees
Common area maintenance (CAM) fees are charges paid by tenants to cover the costs of maintaining and operating shared areas within a commercial property, such as parking lots, lobbies, elevators, and other amenities.
Full-Service Lease
A full-service lease is a type of lease where the landlord covers all operating expenses for the property, including utilities, maintenance, and janitorial services. This type of lease can simplify things for tenants as they only have to pay one monthly rent payment.
Sublease
A sublease is a type of lease in which the tenant rents out their space to another tenant for a portion of the lease term. The original tenant remains responsible for paying rent to the landlord, but they become the sublessor, and the new tenant becomes the sublessee.
Negotiating Your Lease
When it comes to leasing an office space, negotiations are often involved. Here are some key things to keep in mind during this process:
• Know your budget and stick to it
It’s important to determine how much you can afford to spend on rent and other expenses before entering negotiations.
• Consider the length of the lease
Most office space leases are between 3-5 years, but depending on your business needs, you may want to negotiate a shorter or longer term.
• Understand what is included in your rent
Make sure to clarify with the landlord what expenses are covered in your rent and what additional costs you may be responsible for.
• Be aware of hidden fees
Some leases may include hidden costs, such as CAM or NNN charges, so make sure to carefully review the terms before signing anything.
Final Thoughts
Understanding these key terms is crucial for both tenants and landlords in the commercial real estate industry, as they can have a significant impact on lease negotiations and the overall success of a commercial property. At Daniels Greer Commercial Real Estate, we are dedicated to helping our clients navigate this complex world and make informed decisions. For more information or assistance with your commercial real estate needs, please contact us today at (918) 740-1015.