Office Leases Are Financial Decisions Disguised as Real Estate Decisions
By Chris Rohrer & Pete Kostroski | Co-Owners
For many companies, office leases are still evaluated as facilities projects. The conversation starts with square footage, build-out, and amenities, and ends with a lease term that feels “standard for the market.”
From a CFO’s perspective, that approach misses what actually matters.
An office lease is one of the largest long-term financial commitments most organizations make outside of payroll. In the Twin Cities, it’s common to see office leases structured for seven to ten years. At current Class A effective rents—generally ranging from the mid-$20s to low-$30s per square foot, depending on submarket—that commitment can easily translate into $14–$17 million in base rent for a 50,000-square-foot requirement, before operating expenses and capital costs are considered.
That is not an operational decision. It’s a financial one.
Why Rental Rate Is the Wrong Starting Point
Most lease discussions still anchor on base rental rate. Landlords highlight it. Brokers repeat it. Internal teams often use it as the primary comparison metric. But base rental rate alone tells you very little about the true cost of a lease. Two leases with identical rents can produce very different financial outcomes depending on how they handle escalations, operating expenses, free rent, and—most importantly—flexibility. In practice, these structural elements often matter far more than a dollar or two of starting rent.
In the Twin Cities market, annual rent escalations of 2.5% to 3.0% are typical. Over a 10-year term, those increases compound quickly. When layered with variable operating expense exposure and capital commitments tied to tenant improvements, the real cost of occupancy can diverge meaningfully from what the initial term sheet suggests.
The Risk Most Teams Don’t Model
Unlike debt or major capital investments, leases are rarely stress-tested.
Very few tenants model questions like:
What happens if headcount growth stalls?
What if hybrid work reduces utilization permanently?
What is the cost of carrying excess space for multiple years?
How expensive is it to exit if assumptions change?
In markets where office vacancy still exceeds 20% in several Twin Cities submarkets, landlords are often willing to trade economics for longer commitments. That trade may look attractive in the short term—but it shifts risk squarely onto the tenant.
When flexibility is removed, downside risk increases. And that risk has a real, quantifiable cost.
The Cost of Late Finance Involvement
In many organizations, finance teams are brought into lease discussions too late. By the time the lease reaches accounting, the term length is set, exit options are gone, and leverage has largely disappeared. At that stage, the CFO’s role becomes one of validation rather than strategy.
The most expensive mistakes in office leasing rarely come from paying slightly above-market rent. They come from committing to rigid lease structures that no longer align with the company’s operating reality three or five years down the road.
How Sophisticated CFOs Are Thinking About Leases Today
The most disciplined finance leaders aren’t focused on winning the lease negotiation. They’re focused on reducing regret.
That means prioritizing:
Shorter weighted-average lease terms
Clearly defined termination options
Expansion rights that don’t reset pricing
Predictable operating expense exposure
These features don’t always produce the lowest upfront rent. But they often produce a safer outcome when assumptions inevitably change.
Office leases don’t become problems because markets shift. They become problems because risk is embedded into the structure and ignored at the outset. For CFOs, the real question isn’t whether a space works today. It’s what the lease does to the company if the future looks different than expected. That answer lives in the numbers—and in the structure—not the floor plan.
Are you evaluating an office lease or approaching a renewal? Connect with Rokos Advisors to better understand how lease structure impacts long-term financial outcomes.
Rokos Advisors is an award-winning Minneapolis - St. Paul based commercial real estate/tenant representation firm specializing in helping businesses find the perfect office or industrial space for their company.