Office Lease Offers: Why the Lowest Asking Rent Rarely Wins

What sits inside a landlord's offer besides the rent

Read a landlord's proposal as seven parts, not one number.

• Face rent, quoted per rentable square foot per year.
• Free rent: months at the start when nothing is due. Free rent explains how those months are counted.
• The improvement allowance, the landlord's money toward your buildout. The allowance entry covers when it is paid.
• Escalations, the yearly increase, commonly 2.5 to 3 percent.
• The term, which sets how many years the concessions are spread across.
• Security: a deposit or a letter of credit, and whether it steps down over time.
• Options: the rights to renew, expand or sublet.

Two offers reduced to effective rent: an illustration

Suppose two landlords reply on the same 5,000 square foot floor, each for a five-year term. In this illustration the first asks $80 a square foot with five months free and an allowance of $40 a square foot, and the second asks $76 with one month free and an allowance of $10 a square foot.

For each one, total the rent over five years, take off the free months and the allowance, then divide by the years and the square feet. In this example the $80 offer nets out near $65 a square foot a year, and the $76 offer near $73.

The higher ask is the cheaper deal, on one condition: you would have spent the allowance on the buildout anyway. The sketch leaves out escalations and the time value of money, and its figures are an illustration, not quotes.

Why nobody can hand you a list of the best offers

A search for the best lease offers from real estate firms assumes that firms keep deals on a shelf. They do not. A landlord writes an offer for one tenant, one floor and one moment: your credit, your term and how long the floor has stood empty all move it. What another company was offered last quarter says little about what you will be offered.

What a firm can do is put the same request to several landlords at once, keep at least two floors alive, and bring every reply back in one format. How to negotiate an office lease shows which parts of the package move.

What the comparison sheet tells you about the firm that made it

The sheet a brokerage gives you at this stage is the best evidence of its work you will see before signing.

• Every offer is converted to one basis: effective rent across the same number of years.
• The arithmetic is visible, so you can change an assumption and watch the result move.
• Buildout cost and construction time sit beside each floor before the lease is signed, not after.

A sheet sorted by asking rent has skipped most of that work. The live block below holds the floors asking $75 to under $100 a square foot, the band this illustration sits in, with their current figures.