If you’re in the process of securing office space to rent in NYC, you know that nothing is easy or logical and certainly not WYSIWYG (what you see is what you get.) The question I’m often asked is “What is the average price per square foot for office space in NYC?” It’s actually a trick question. However, the short answer is anywhere from $27/sf to $140/sf. The reality is, those numbers are just the start of what you’ll pay for. Here’s a quick lesson in what you’ll rely on a broker for, to navigate you through to a successful lease signing.
Rentable vs. Usable
When you see a listing or an ad, the number of square feet is not the amount of space you’ll get. This number is the “gross” or rentable square feet, which is used to calculate the additional charges that you’ll pay for the space. The number you’re interested in is the “net” or usable square footage. This amount can be anywhere from 23% to 50% less than the rentable number.
For example, a listing says 1,000 square feet, which is how much space you estimate is needed for your business. It’s priced at $35.00/sf, which equals (logically) $2,917/month. (How did I get that amount? Multiply $35 x 1,000 sf = $35,000. Divide $35,000 by 12 months and that equals $2,917.)
When you measure the rooms, you find out they total 750 square feet. The difference of 25% is called the loss factor. This is what the landlord is charging you for the use, upkeep and wear and tear of the common areas of the building (lobby, restrooms, hallways, stairwells, elevators, etc.)
The layout of the space may equal 750 square feet but many times it doesn’t match your needs for office furniture, private offices, conference room, etc. This is where a good broker comes in. Once they understand your needs, they can preview properties without dragging you from building to building, seeing spaces you know are wrong from the minute you walk in.
If you have a $3,000/month budget, right now you’re thinking you can make the 750 sf work for your needs. Unfortunately, we’ve only just begun to tally your monthly bill. You also have to pay for your own electric usage. This is calculated one of three different ways, depending on how the space is metered.
“Plus electric” – This means you pay the base rent plus a set amount per square foot for electric. The rates usually run somewhere between $3.00 and $4.00 a foot. So now we’re not at $35.00/sf, we’re at $38.25/sf ($3.25/sf for electric) and yes, it’s on the 1,000 sf, not the 750 usable sf. If it’s a smaller space, this is the most commonly used way to charge for electric.
“Sub-metered” – This is when a space has an electric meter but it’s read by the landlord, who charges you for the usage plus an administrative fee. Currently, you can expect to pay approximately $2.65/sf plus meter reading surcharge of anywhere from 3 to 10%.
“Direct meter” – This is where the meter is located within the space and you pay the utility company directly. This is usually the most economical option, as you’re in control of who your provider is, without any surcharges from the landlord. This currently runs about $2.65/sf.
If the space you’re considering has a $3.25/month/sf charge for electric, your monthly rent is now $3,187.50. Not too far over budget, but we have a few more items to include.
“Utilities” – Your landlord is going to have you pay your portion of the building’s use of water, sewer, garbage and fire sprinkler costs. Depending on the size of the space, this can range from $50 to $100/month per utility. For our example, let’s say it’s $50/month/utility, which equals another $200/month. We’re now at $3,387.50/month. You’ll also have to take into consideration that the lease may include a clause allowing the landlord to escalate the utility charge on a yearly basis as well.
“Real Estate Taxes” – The first year of your lease is the base year. If the building’s real estate taxes increase the following year, you will pay your proportionate share of the increase. Depending on the size of the space, this can range from a few hundred dollars a year and up. During the lease negotiations, we’ll calculate a closer approximation based on historical increases.
“Cleaning” – This is something for you to take into consideration to clean the offices, private bathrooms, kitchen/pantry, vacuum, empty garbage, etc.
“Insurance” – Although this is not part of your square footage costs, it is a requirement to secure insurance to protect the landlord. Coverage requirements differ based on the amount required.
Depending on your requirements for the image you need to portray to your clients and employees, you will be choosing either a Class A, B or C building.
Class A buildings are the most expensive per square foot. Anything newly built or built after the 1960’s are generally Class A. You can easily identify these as gleaming skyscrapers or buildings with sealed windows (no air conditioners hanging out of the building) or if they have a prestigious address. There are exceptions, like iconic buildings – the Empire State Building and the Chrysler Building (just to name two) – both built in the 1930s, are Class A.
What Class A buildings offer can range from 24 hour lobby attendants and security check-in to LEED certification (think “green” and energy efficiency) plus other upscale amenities.
Class B buildings are older but modernized and offer less services to the tenants than a Class A. Their locations may also be on less desirable streets.
Class C buildings may be the same age as Class B but seem run-down or in less-than-coveted parts of the city.
Where to start?
As you can see, the search for office space is complicated and full of unknowns. The biggest hurdle is staying within your budget and reducing time wasted looking at inappropriate spaces. All good reasons to work with a broker who specializes in NYC office space. Best of all, the broker is paid for by the landlord, so their services cost you nothing.
For smaller businesses who require office space but aren’t ready for the commitment of a 3 to 5 year lease and uncapped expenses, a turn-key office is a great alternative.
Mark Karten is the founder of SpacesNY and exclusively represents tenants in their search for securing office space in Manhattan. Mark has created the NYC Startup Conversations for Success, which gives small businesses and startups access to trending topics and important issues in a collaborative environment. Click HERE to participate in the next event.