Most California office tenants know that commercial landlords typically pass on a pro rata share of real estate taxes, including property taxes, to their tenants. In the most common office lease, tenants are only responsible for property tax increases over the “base year” amount which is most often the year of the commencement date or the year following the commencement date.
In California, Proposition 13 currently limits property tax reassessments (increases) to 2% annually, but allows for full tax reassessments if the building is sold, more than 50% is transferred, or substantial new construction is completed. Under the proposed California "split roll" ballot measure, office, industrial and retail buildings would be to be regularly reassessed and taxed at their full value. As a result, property tax reassessments could have a devastating effect on California office tenants.
Buildings that have been owned and managed by the same entities for a long period of time may not have been reassessed under Proposition 13 for years and in some cases decades. As a result, these buildings carry a potentially large operating expense/tax liability that buildings with high resale turnover do not. Tenants in buildings with the most stable long-term ownership will have the largest tax reassessment liability under the split roll ballot measure.
At a minimum, it’s important to do the math on your potential split roll and/or Proposition 13 reassessment liability before entering any new lease or renewal in any building in California. Tenants need to know when the property was last reassessed for Proposition 13 purposes, what its assessed value was and what its assessed value is today in order to forecast the potential liability due to a transfer of ownership under Proposition 13 or a mandatory reassessment under the split roll initiative. The longer it’s been since the last reassessment, the greater your exposure to property tax increases.
What is the average square footage of office space per person?
The trend in average square footage of office space per person is clearly down. Companies have been modifying their space parameters to attract and retain the sharing generation workforce. Layouts of offices are dramatically different now than even 10 years ago. The open design has replaced a cube farm which years ago replaced enclosed large office designs.
In 2017, U.S. office space per employee dropped to 182 square feet per worker according to commercial real estate information provider CoStar. That's down from 197.3 square feet in 2010. The rule of thumb for creative open space that startup and small technology companies seek has been decreasing from 200 to 250 square feet to as low as 100 to 150 square feet of “usable" office space per person.
What are typical space allocations?
The following office space allocations can be used to help estimate the amount of usable office space required for your business based upon uses. Any common area load factors (typically between 10% and 20%) will need to be added on to determine the "rentable" area.
• Large Office - 200 to 400 sq. ft.
• Medium Office - 150 to 250 sq. ft.
• Small Office - 90 to 150 sq. ft.
• Open Space Workstations - 60 to 110 sq. ft. per person
• Work Group Areas - 80 to 100 sq. ft. per person
• Reception Area - 100 to 200 sq. ft. + 10 sq. ft. per person waiting
• Conference Room - 50 sq. ft + 25 sq. ft. per person seated
• Mail Room - 125 sq. ft.
• File Room - 200 sq. ft.
• Lunch/Break Room - 75 sq. ft. + 25 sq. ft. per person seated
• Work Room - 125 to 200 sq. ft.
• Halls/Corridors within the space - 20% to 30% of the total usable area
How much office space do I need?
In general, estimate the square feet per employee or by use (above). Then, make sure that you are accounting for planned growth. Make headcount projections for the expected term of the lease. Then, lease space so that around 2/3 or 3/4 of the way through the term you start reaching the occupancy limit.
Keep in mind that no two spaces are alike. Look for spaces that are more efficient, like rectangular spaces versus angled corners of a building. No two spaces with the same square footage are the same. Floor plan and layout matter.
If you are planning to grow, minimize the disruption to your business by seeking termination rights and expansion rights on contiguous space. Growing into adjacent space is far less disruptive than relocating your business to another building.
Efficient space planning will not only quantify the right amount of office space but identify the office space with the best combination of value and size fit.