Short Term Versus Long Term Office Space Lease
To lease office space short term in NYC or a long term—for many tenants, that is a critical choice. The terms for commercial leases in New York City generally range from two to fifteen years. Because of the costs required to “remarket” a property (including legal fees, build out costs, and lost rent during vacancy), landlords generally require a minimum two year lease term. On the other end of the spectrum, landlords are hesitant to sign leases with a duration exceeding fifteen years due to uncertainty about future rents.
For tenants seeking commercial office space in Manhattan, there are various advantages and disadvantages associated with short and long term leases one should consider before signing on the dotted line.
Short Term Leases: Maximum Tenant Flexibility
The greatest advantage of a short term lease is that it offers the tenant maximum flexibility. If the space turns out not so ideal or the business simply outgrows the configuration, the tenant can easily relocate to a smaller or larger space once the lease expires.
Start up businesses expecting a surge in the number of their employees usually opt for short term lease. This would be typical of a technology start up in Silicon Alley.
However, there are a few drawbacks to short term leases from the tenant’s perspective. First of all, landlords are generally unwilling to provide new tenants very much in the way of construction (improvements to the space) if the lease term is short. Second of all, tenants become vulnerable to a rent hike upon the expiration of their lease if the real estate market has picked up. In other word, short term leases provide no security in locking in a favorable rent for the long term.
Long Term Leases: Predictable Long Term Real Estate Costs
Long term leases, on the other hand, offer several distinct benefits over their short term counterparts. Tenants enjoy predictable long term real estate costs and insulation from the risk of rent hikes throughout the terms of their leases (with the exception, of course, of agreed-upon rent escalation). A long term lease provides the tenant with greater leverage in negotiating business terms with the landlord; for example, the landlord will generally offer more in the way of a build out if they are locking in a reputable tenant and have a sufficient lease term to amortize the cost of construction. The only real disadvantage of a long term lease is reduced flexibility. Tenants with businesses that grow quickly or downsize suddenly might find themselves in a position where they need to sublease their space or negotiate an early termination of their lease with the landlord.
Whether a short term or long term lease is the right choice depends on the tenant’s business model. Metro Manhattan Office Space can help you make this important decision.
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