Commercial Office Space in India - Leasing Vs. Owning analysis

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta
 

This post covers the topic of Commercial Office Space in India and why businesses choose to lease office space than owning a piece of commercial real estate!

Businesses use real estate as part of business operations along with manpower, machinery, and other resources to produce desired output. Even though the primary business of these corporations is not real estate investment, they have to make many decisions regarding the use of real estate because real estate is typically an integral part of the firm’s operations. For example, real estate is used for office space, warehouse, manufacturing, retail, and so on. Vast majority of real estate used by business firms is leased and not owned because of following reasons:

1. Space requirements are less than the quantity of space that they would have to purchase in order to satisfy their needs in a desired location. Even if they lease the remaining space to other business firms, still leasing would be preferred than owning mainly because
• Large capital to purchase the desired space
• A purchase would put the business firm in real estate business which can take away the focus from firm’s core activities.
2. Even if business firm manages to occupy all the space that is available with the purchase, the firm will still prefer to lease
• Owning would reduce operating flexibility: if the business firm desires to move its operations from the purchased location, then space selling or leasing to other firms will constraint the movement or slow it down. Instead, had the firm leased the space then they can move without having to worry for real estate space.
• If the space is owned, then it must be maintained, operated. These activities may result in loss of focus of the firm from their core activities. Operating and managing properties is usually done more cost effectively by firms that specialize in the real estate operations.
• Flexibility of scaling down the business. That means if a firm decides to scale down its operations then the firm can do it easily if the space has been leased than owned. Scale down means use of less space.
3. Real estate business activities should be performed by professionals trained in real estate business. Some of the following activities are:
• Selecting the right tract of land and developing the right amount of space
• Leasing that space to many different tenants, for example, builders develop Office Space in Gurgaon and lease it to many different tenants with different office space sizes.
• Hiring personnel, collecting rents, and maintain the facility
• Finding financing for the investment or development
• Doing continuous research about real estate markets in order to decide when to sell, raise or lower rents, renovate and so on.
• Many other such activities.

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Are you a start-up or a growing organization? Find the checklist before you lease your next office space.

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta
 

Are you a start-up or growing organization? As a small company looking to bring new and innovative products and services to market, you want all your focus on the job at hand. You simply need no deviation from your core activities. While in large companies there is always a team to look into the non-core activities of a firm. The start-up can simply not afford it. The non-core activities include finding the right office space, manufacturing facility, admin tasks, and many such activities. Whereas the focus of a start-up is always on its products, customers, etc. However, there is no getting away from non-core activities.

Being a start-up ourselves, we understand how difficult is to perform these non-core activities within the constrained time and budget. Therefore, let’s start from the first step itself, i.e. finding your next office space. Make no mistake, having a right office space will not only allow you to focus on your core activities but at the same time it will help you to attract talent on your path to glory. So what are the things you as the founder of the start-up should keep in mind before going for office space hunting?

Tip 1 – Area Requirement:
Assess your current team size and the short term increase or decrease in team size. Let’s be clear, that most of the leases with landlord/developer will have a lock-in period of 3 years (it can be negotiated though). Therefore, having an eye on future expansion on team size will help you a great deal to justify the office space you lease for your operations. Having done that, now you need to calculate the area required. Our estimate based on the historical data assigns 80-100 Sq Ft per employee. Therefore, having a team of 10 should mean 800-1000 Sq Ft of carpet area requirement.

Tip 2 – Building efficiency:
It makes sense for you to look for office space buildings with greater efficiency. Now, what is building efficiency? Building efficiency is basically the ratio of usable (carpet) area to super area. In other words, higher the efficiency, the better is the space utilization in the building. Therefore, look for buildings with higher efficiency. For example, the building efficiency for Office Space in Gurgaon varies from 65-80%. Let’s take an example, having assessed your team size; you came to conclusion that you need 1000 Sq Ft of usable area. Now, for 80% building efficiency, the super area (the area on which you will pay rent) will be 1250 Sq Ft. And for 65% building efficiency, the super are will be 1540 Sq. Ft. It’s a no brainer that you will choose the building with 80% efficiency to cut on your monthly rent.

Tip 3 – Parking and Location:
Make sure to check for parking spaces available for your office space. As a standard practice, one parking is made available for every 1000 Sq Ft of area leased. One can also rent or buy the additional car space. If your business requires that your customers visit you frequently, it make sense to find the office space in a locality which is located in central business district, and is easily connected by road, metro, etc. And if you operate a back office call center, then location becomes irrelevant for office space set-up.

Tip 4 – verify other charges in addition to the rent:
Make sure to check the other charges in addition to the monthly rent. Typical charges include CAM (Common area maintenance, electricity, taxes, and lease registration charges). In Grade A buildings, CAM charges would typically be 12 to 16 Rs. / Sq Ft. Electricity charges will be as per actual. And taxes, lease registration charges vary from state to state.

Tip 5 – Read the lease documents carefully:
You would have heard of this phrase a many times “Read the documents carefully” :). Typically, a lease paper should comprise the parties to lease, lease date, lock-in period, minimum rent deposit (6 months, although it is again negotiable), lease term including the lease renewal options, rent appreciation format, CAM charges format, size of the area, and other legal clauses. For more about the lease document, Download "Points to remember before leasing your Office Space in Gurgaon"

Go through the process carefully, and all the best in building a great company!

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Furnished Office Space 15000 Square Feet on Golf Course Road Gurgaon for Lease

E-Commerce, IT/ITES, Consulting, Banking & Insurance, Other financial services, or Companies looking to set up their Head Office in Gurgaon have an opportunity to lease 15000 Square Feet of A-Grade Office Space at highly attractive rental and terms. The Office space is fully furnished & ready to move and offers following amenities:

• 170 workstations
• 15 cabins
• 1 Cafeteria for 35 persons
• Separate toilets for Ladies/Gents/Directors
• 15   reserved car parking space
• 100% Power back up
• Conference hall for 50 persons

This fully furnished office space on 3rd floor with a super area of 15000 sq ft is located on one of the most prime location at Golf Course Road, Sector 53 in Gurgaon.

Office Space Details:

FLOOR	: 3rd Floor
COVERED AREA	: 15007 square feet
ELECTRICAL SANCTIONED LOAD	:  75 KW
HVAC CAPACITY	:  66.5 TR
POWER BACK UP	:  Available with DG
CABINS	:  15
TOILETS	:  3 Gents, 3 Ladies
CAFETERIA	:  1 (35 People)
NO. OF CAR PARKING	:  15

Plan:

For more details:

Visit Fully Furnished Office Space in Gurgaon

or Write to us at nirrtigo@nirrtigo.com

Find your next Office Space in Gurgaon

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta
 

Find your next Office Space in Gurgaon

Over the past one month, we have analyzed the market for Office Space in Gurgaon. And having done that and understanding the intricacies of commercial real estate, we have now launched the new feature “Office Space Search” on www.nirrtigo.com. While we’re not the first to ever show office space listings on the web, we do believe we bring a new obsessive focus to how we present a simple listing. We assure that, whichever office space we list on our portal, we have been there, we collect information at ground zero including the picture, lease term, lease rate, facilities, etc. We care about delighting our users in the same ways a building developer cares about the feel of new lobby, the way an architect cares about the materials of a new project.

Currently, we are sourcing office space listings directly from landlords, however, as we move along we will bring in brokers to list the office space in order to free the unorganized yet useful Office Space in Gurgaon and bring it online on the portal. The objective is to help start-ups, companies find their office space.

Why this now?
We have been there and faced the similar situation as any of the other start-up. Despite being in the real estate domain, we found it difficult to find office space within our budget. With this in mind and keeping the requirements of start-ups, we launched “Office Space Search”. We understand how difficult it is to get authentic information on office spaces for rent or sale. We have an in-house data-collection team which physically goes and verifies every detail of the office space and the locality before uploading it on the Web site. We’re constantly refreshing our data, so you have the most updated information.

How it works?
1. Visit Office Space in Gurgaon. You can also filter the listings based on micro markets such as Cyber city, MG Road, Sohna Road, etc.

2. Click on any of the listings and it takes you to the details of that listing including the real photo, summary, size, and other important details.

3. Get all the details regarding the office space including the lease rate, floor number, facilities, rent, extra charges, brochure, floor plan, map, and even read and write reviews.

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Basics of office Space leasing and what’s in it for the tenant (companies) and the developer/landlord who is offering the space to lease.

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta
 

Office Spaces are leased to tenants for a specified period of time. The lease document assigns rights, duties, and responsibilities between the lessor (owner) and lessee (tenant) for the duration of the lease. The terms of the lease include legal considerations that are designed to protect the interests of both the lessor and lessee and specify how rents and expenses are to be paid.


General contents of a lease: 

1. Parties to the lease, namely, lessor and lessee
2. The date of lease agreement
3. Occupancy date (move-in date)
4. Identification of area to be leased
5. Duration of the lease term
6. The base or minimum rent
7. Method to calculate the future rent
8. Description of any concessions and other inducements to be provided to the tenant by the landlord
9. Deposits and any indemnities
10. Guarantees from third parties or co-signers
11. Condition of the leased premises to be provided to the occupant on the move-in date, including any tenant improvements
12. Allowable uses of the property, restrictions on occupancy, and prohibitions regarding future changes in the use of the property
13. Any restrictions on assignment or subletting of any of the leased space by the tenant
14. Use of common areas and facilities such as lobbies, rest rooms, and parking lots
15. Responsibility for maintenance and repair of the tenant’s space and of general premises
16. Any restrictions on alteration or improvements to the property by the tenant
17. Construction of any expansion in the future by the owner and provisions for affected tenants
18. The responsibility for payment of specific expenses by the lessee and/or the lessor
19. The extent to which the lessor and/or the lessee must provide for fire and casualty insurance
20. Any lease renewal options
21. Estoppels

For large corporate users who may be leasing large amount of space and who plan to move many employees and equipment to the space being leased, many conditions are negotiated in the lease agreements.

Leases and Responsibility for expenses (recoveries):

Owners of office space property incur many operating expenses. Some expenses such as electricity, water usage, and gas are paid by tenants individually. However, expenses related to the areas of the property (common area) used by all tenants, the normal way is to recover those expenses by prorating them among all tenants.

Typical operating expenses for office space properties:

1. Cleaning: Housekeeping
2. Repairs
3. Maintenance
4. Landscaping
5. Electricity
6. Water/Sewer
7. Security
8. Management
9. Real estate taxes
10. Insurance

Different combinations of rent and of operating expense recoveries are possible:

1. Gross (full service leases): tenant pay only rent and owner provides all services and pays for all operating expenses.
2. Modified (full service leases): tenant pays rent and pays for individual, specified expenses identified in the lease such as electricity, gas, water and the like. Such expenses are usually linked to tenant by sub metering. Tenant also pays pro rata share of certain operating expenses (known as CAM Charges) incurred by the property owner.  This is the most preferred lease mechanism in India.
3. Leases with expense recoveries in excess of an expense stop: tenant pays rent plus a pro rata share of certain operating expenses incurred by the property owner. Here stop is usually calculated as the total operating expenses per square foot of rent-able area in the building that is incurred by the owner during the specified base year. The tenant agrees to pay only for expenses per square foot in excess of this stop. This way, the owner hedges its risk of increasing operating expenses and passes it on to the tenants.
4. Pass through leases: these leases are made when a few tenants lease very large amount of space in a property. When fewer tenants lease large amounts of space, operating expenses tend to be identified and linked more directly to those tenants. In this case, base rents tend to be lower than for full service, and modified full services lease.

Some Important terms:

Rent-able area in a building:

Total area on all floors + lobby – thickness of exterior walls – any columns or protrusions through the floors – mechanical equipment closets – basements and any area needed by owner to maintain or operate the building + elevator landings + reception areas + restrooms + any other area that could be used by tenants

Multiple tenants – Rental area per floor:

When there are many tenants in a building, each tenant will occupy its usable area on a floor. However, there would be some common area used by all the tenants. In that case, the common area will be prorated among the multiple tenants in order to determine the actual rent-able area. 

Load factor: 

Total rent-able area/total usable area. Load factor is seen as “efficiency measures”. High load factors generally mean a large number of common areas and therefore lower building efficiency. For example, load factor for Office Space in Gurgaon varies from 1.25 to 1.67. Generally, tenants occupying larger office space has lower load factor relative to the tenants occupying smaller office space.

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