What are the most common costs associated with moving into office space?
When beginning an office space search, there are certain out-of-pocket expenses that a tenant should be aware of. Below are several common costs that a tenant should plan for when moving into permanent office space.
Security Deposit: Landlords require security deposits from all tenants. Due to the risk associated with hedge funds, especially start-ups, a landlord will typically require a security deposit, in the form of a letter of credit, for roughly 6-12 months.
Furniture: Furniture is one of the largest initial expenses that a tenant will incur when moving into new office space. Similar to furnishing a residence, these costs can vary tremendously depending upon the quality and specialization of the furniture. A good starting point would be to budget +/-$30 per square foot for new furniture or +/-$15 per square foot for refurbished furniture.
Wiring For Cable and Data: Office space typically does not come wired for phone and data unless it was previously occupied by another tenant who left their wiring intact. Even in this case, unless it was recently built by another hedge fund, many times the existing wiring needs to be updated and replaced. As a result, an incoming tenant will be required to foot this expense which we estimate to be somewhere between $3-$5 per square foot.
Electricity: The tenant is responsible for their use of electricity. There are three ways that a landlord typically charges for energy consumption.
- 1) Rent Inclusion: the landlord will charge a fixed amount of money for energy usage. This is typically between $3.00 and $3.50 psf/annually, depending on the landlord.
- 2) Submetered: The landlord will install a meter to monitor energy consumption. The tenant will pay for their proportionate share of the usage, plus a 5-10% administrative fee to the landlord.
- 3) Direct Metered: The energy service is billed directly through Con Edison.
Supplemental HVAC (Cooling): It is not uncommon for a hedge fund to trade after hours, work long hours and/or require 24/7 cooling in their IT closet. Accordingly, some funds require a supplemental HVAC (Heating Ventilation and Air Conditioning) unit which can “supplement” the building air during the day and also cool the premises and/or IT closet after the buildings’ air conditioning system is turned off for the day. Most buildings run their HVAC from 8am-6pm, some have slightly extended hours and some contain 24/7 tenant controlled package units. In the buildings that do not offer a tenant controlled 24/7 option, tenants may decide to install a supplemental unit. Depending on a number of factors these units can be relatively expensive and this cost must be weighed against other alternatives.
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