Parking Ratios for Office Space

Over the years, we have had folks contact us about leasing office space and there is one attribute that seems to fall thru the cracks more so than other parts of leasing an office in Austin. It comes down to parking and parking ratios.  A lot of tenants may think, no big deal, I can lease an office in Austin and parking is not a problem. Is this true? Actually, it is not true and should be of great concern. You see there are municipal codes in place called parking ratios that allow for only a specific number of parking spaces based on the type of use a tenant has and the square footage occupied.  Are there some parking lots for buildings that are overbuilt to handle more parking the answer is yes, however when it comes to a 100% occupied property the parking ratios will be more stringent.

Parking Ratios based on Office type?

So how does it layout and what should a tenant expect? Well the first question that has to be answered is : What type of use is the office going to used for? Why? Because certain uses have higher parking ratios than others. Here are some quick examples a Billiard Hall will have 1 space for every 100 square feet, a Medical office will have 1 space allocated for every 275 SF.  What about a general office space? A professional office is 1 space for every 275 SF , recently a potential client called us asking for 1000SF and enough parking for 20 people, well let’s do the math. If they are using this as a professional office on 1000SF they are only going to be allotted 4 parking spaces. So how are they going to find a space that has a parking ratio for 20 people?  You see a professional broker would have flagged this and said they do not have realistic expectations and it won’t work.  Let’s take a scenario, you lease a 1000SF office and there seems to be plenty of parking because after all the property only has 80% occupancy. All of a sudden a few big leases go down and now the property is 95% occupied and the fellow tenants are complaining that you are taking up their parking spaces, is that a problem? Yes, it is going to be.  So make sure your broker covers your bases with you before you are given an impression that it is no big deal.

CAM Charges and Capital Expenses

Tenants need to understand what is included in CAM charges. A tenant needs to understand what is in CAM Charges. Capital expenses- roof, structural, not normal wear and tear items can come up and  Landlords can try to pass thru these expenses.  A capital expenditure adds value to the property for more than 1 year, whereas OPEX or NNN charges are more about maintaining the property near term.

New laws that may allow the LL to not show capital expenditure expenses itemized and they may be passed thru to the tenant. It is almost a form of double dipping when adding capital expenditures to CAM charges. Whatever expenses are being used to maintain a building ( as an example free standing) to maintain the building in an on going long term basis could be considered as a capital expense.

Capital expenses may be removed from the accounting expenses but may not be excluded from a lease document. Developmental costs should be excluded , as where a parking lot improvement should be expensed out of a longer period of time such as 7 yrs for CAM. CAM charges may have a hidden maintenance fee in a lease as a percentage management fee. Cap protections can be negotiated.

Example: Perhaps a top coat on a parking lot is required maintenance which is just a coating on the parking lot versus digging up a parking lot and putting in new concrete which could be considered as a capital cost. However there are some grey areas , if a portion of the parking lot is done as opposed to the whole parking lot,  that may be considered as common area maintenance and not a developmental cost or capital expenditure.

Benefits and Detriments to Landlord

For the landlord or the REIT, they it is possible for them to pass thru costs and expenditures to squeeze tenants to improve their P&L. In a NNN deal, line items can be audited as a judgment call. If a tenant goes to a landlord and asks for line itemization it is entirely possible to get into a judgement call which may not be correct and consequently this would upset negotiations. So it is important to be clear on perspectives and what is reasonable.

Landlords tend to have a sensitivity to keeping costs in alignment to keep tenants, if they pad or keep CAM charges out of control, then the consequence would be their tenants moving out.

Mis-charges of CAM

NRTA – National retail tenants association, is an organization for tenants to protect each other. A tenant can reach it by viewing : www.retailtenants.org

Most tenants do not pay as much attention to CAM charges as they should. Tenants should be provided a reconciliation statement before the end of the year. There should be a provision for this in your lease this can keep the landlord honest to reimburse a tenant if it is required.