Firms considering moving office need to be aware of the issues that can arise, such as lease terms, legal issues, fit-out and staff requirements
Last year there were 160 letting transactions recorded in the Dublin office market. Almost 90% were to companies in the SME sector.
Every year the data is similar, meaning that the vast majority of lettings in the Dublin, Cork, Galway and Limerick office markets comprise small-medium sized companies moving offices.
Post-Covid, companies are reflecting on how they occupy their physical office space and considering what alternatives are available to them.
Over the past 25 years, I have helped lots of SMEs acquire new offices and often they are simply unaware of the costs and time implications involved in the process.
Finding the right premises can be very challenging. When I first meet SME clients, they are understandably excited about the prospect of moving, particularly if they are in expansion mode. They are thinking about their ideal location, researching cool office fit-outs and already picturing themselves in their new shiny offices.
While most are generally well informed on office market conditions, they frequently underestimate the time it takes to complete an office leasing and moving process. From my experience, it’s a 6 to 9 month journey. That’s the reality. By the time you undertake the office search and selection process, negotiate lease terms, navigate through the, typically slow legal process and undertake the fit-out, time passes quickly and months slip by.
The amount of client input required can also be substantial and is required throughout the process, from the initial premises decision to legal meetings and fit-out consultations. It can prove stressful, particularly for those who are not experienced with this type of project.
Deciding how much office space companies actually need is critical. Currently, this is difficult for SMEs to assess. Most have just begun welcoming staff back into the office on a more consistent basis. Working from home and hybrid working models are popular and look likely to endure. Some believe we are heading towards the 4-day working week. With all this to consider, it can be difficult to figure out how much space is needed.
My longstanding rule of thumb guide on this is to apply a rate of 100 sq.ft of office space per person. This rate factors in items like kitchen/canteen area together with some meeting spaces and general circulation. Therefore, a company with 50 people working consistently in their office space should seek circa. (50 x 100 sq.ft) 5,000 sq.ft of Net Internal Office Area, or NIA as it’s known in the industry. It’s not a one size fits all guide but it’s a great starting point.
Most SME’s have a 3 – 5 year business outlook so lease flexibility is key in any contract negotiations. Most offices in 5,000 sq.ft range are likely to contain tenant break options after years 3 or 5 depending on the actual size of the letting and building quality.
Quoting office rents have remained stubbornly high over the last two years but SME’s need to remember the key word here is ‘quoting’, which refers to the gross rent. As part of an overall leasing deal, rent-free incentives and lease flexibility will be offered as part of the negotiations. Typical rent free periods are running at 1 month per term certain offered so, a 5 year lease should come with 5 months’ rent free.
Local authority rates and building service charges can also apply adding another approx. €15 per sq.ft on top of the rental charge.
When moving from one premises to another, clients are often unaware that they may have exit costs from their current office. These costs are referred to in the industry as ‘dilaps’ and are referenced in the Yield Up provision in leases.
Simply put, this provision requires office space to be returned to the original condition it was received in at the start of the lease, i.e. removing all partitioning, furniture, equipment etc. or alternatively pay a sum of money to the landlord in lieu of same costs.
Dilaps need to be factored into the overall cost of an office move if applicable. Again, this ‘hidden’ cost can come as a surprise to some. The industry rule of thumb is approx. €30 per sq.ft.
Another potential budget surprise is office fit-out. With rising construction inflation in the last 12 months, the cost of fitting out new office space (partitions and glazing for meeting rooms, office furniture, data installation and labour costs) has risen by up to 40%. SMEs should be factoring a range €60 to €100 per sq.ft in relation to office fit-out depending on quality and specification.
Moving office should be exciting. My advice for a smooth journey through the process is to hire an experienced Office Tenant Rep Broker, use an efficient firm of solicitors and get solid advice on fit-out costs at the outset. This will also help reduce the stress involved and let you get on with your day job.