Finding the right office space can be both one of the most exciting and disruptive challenges for a business. Over the years, we’ve developed a roadmap for our startup and small business clients to help navigate the process of finding office space.
Below are some of the most important questions to consider.
How do I start?
Be in position to make a quick decision by starting with clearly defined business and real estate objectives. Planned growth, location, transportation requirements, parking requirements, estimated space requirements, optimal space configuration, technology requirements, timing and budget are all important considerations.
In order to minimize disruption and increase the effectiveness of the search, it is essential to start with a clear understanding of your needs, budget and specifications, as well as of the process and time commitment required to successfully find and occupy a space.
Who should be involved?
Internally, you’ll want to appoint a project leader as the single point of contact. At a minimum, get your IT, HR and finance departments involved from the beginning. The leader of the group should be the individual who has the most experience in corporate real estate and facilities.
Be sure to gather a team of advisors. A real estate broker who specializes in representing tenants, particularly startups and newer businesses, can be especially helpful. Startups have special needs, and the right broker will not only understand them, but will also be able to sell the company to property owners. Tenant brokers are typically paid by landlords, so you have the benefit of an expert real estate advisor without paying them out of pocket.
Find an experienced real estate attorney to make sure you have flexibility negotiated into your lease and that the terms and conditions are customary, protective and fair. Most first drafts of a lease are very tenant-unfriendly and can cause unexpected problems down the road. A good, cost-conscious real estate attorney will help you avoid these pitfalls.
When should I start the process of finding office space?
Most startups and small businesses underestimate the time and effort required to find office space. While it is possible to find an executive suite or co-working space within 30 days, it’s not easy.
If you are searching for direct lease office space, there are many factors that will impact the timeline for your search, including but not limited to: The size space you need, market conditions and availability, negotiation time, space planning, lease documentation, permits and build-out time. In general, if you are looking for fewer than 10,000 square feet, you should work backward from your desired move-in date and allow at least four to six months for your search. If you are looking for more than 10,000 square feet, you should allow at least six to 12 months.
What kind of financial guarantees will be required?
Landlords try to mitigate risk by having the most financially secure tenants possible. This can be a differentiator for a landlord when accepting a tenant’s proposal, so be in a position to present your company in the best possible financial light. You will likely be asked for a security deposit or a personal guaranty from the founder. Be prepared to provide financial references, tax returns, bank statements and upfront rent (or a bank letter of credit). Be careful about providing a personal guarantee of the lease obligations — you will be putting your personal net worth at stake. If the company fails, the guarantor will be personally liable, which is a big risk.
What are my options?
Evaluate your options: Shared, co-working, sublease, direct, etc. Landlords typically ask for — and may require — five to seven-year lease terms. Some will accept a three-year term on a direct lease, but the longer your lease term, the more choices you will have.
Before you go to a direct lease space with a multi-year lease requirement, exhaust the shared space alternatives including co-working, incubators, sublease and executive suites. Each of these options has trade-offs, but they will all have more flexible (shorter) term lengths than a direct space lease.
In an incubator, accelerator or executive suite, the landlord assumes the financial and liability risks associated with multiple tenants sharing space. You avoid having to collaborate with other tenants on space requirements, tenant improvements and costs, selection criteria, timing and legal liability. As a result, these shared spaces tend to be more turnkey than sharing space under a direct lease — but you typically will pay a premium when you do the math on rent/square foot.
You may want to explore subleases, provided they fit your timeline and flexibility. You’ll be able to find sublease space at below-market rates, but your trade-offs will include limited or no flexibility on tenant improvements, renewal options and financial liability. Even though you are a sublessee, if the lessee has financial problems one year into a five-year lease, your options will be to relocate or assume the lease.
How much space do I need?
The rule of thumb has been decreasing from 200 to 250 square feet/person to as low as 100 to 150 square feet/person. Here are a few steps to ensure you’re looking at the right size office:
- Make headcount projections for the expected term of the lease. You should lease space so that around two-thirds or three-quarters of the way through the term, you start reaching the occupancy limit.
- 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.
- Seek termination rights and expansion rights on contiguous space. Growing into adjacent space is far less disruptive to your business.
How do I narrow the search?
You’ll need to tour each of the viable options, which can be time-consuming. There are several key variables/criteria that can impact the quantity and quality of your space, and help refine your search to a manageable list:
Term. The longer your lease term, the more choices you will have. Yet the last thing any startup wants is to sign a five-year lease, only to realize in a year that the space doesn’t meet your needs. A good tenant representative will have relationships and direct communication with the landlords, property managers and leasing agents to identify the buildings and spaces that may have more flexible lease terms.
Be steadfast in your need to lease only for the length of term that suits you.
Price. Rather than focusing on rent per square foot, determine up front your budget for rent and office related costs: Parking, utilities, janitorial, relocation, tenant improvements, insurance, furniture and other office fees. Focusing only on the alternatives that don’t exceed your budget will help refine your search to a manageable list.
Layout. No two spaces with the same square footage are the same. For example, a 5,000 square foot rectangular space is much more efficient and will support more people than layouts with round or angled corners. Make sure the alternatives you select have layouts that support your business requirements.
Amenities. A kitchen, break room, shared conference room, food options, transportation, parking ratios, security, high-speed internet, quality of bathrooms and even the number of electrical outlets can be differentiators between two similar space alternatives. If you identify the deal breakers, you’ll be able to refine your search.
What is the parking situation?
Really study the cost, access and the actual spaces your employees and customers will park in. If you ask a landlord about parking, you’ll usually get a ratio and a comment that, “There’s plenty of parking.” Before you sign a lease, you need to walk the parking lot, identify your parking spaces and count them. Stay away from buildings where parking is difficult or costly for your employees and customers.
How do I determine the right location for my office?
Make sure your key employees weigh in on the geographic boundaries for your search. Relocating is disruptive to everyone, and most employees will want to know whether or not the office is convenient for them. If you see clients in your office, consider whether or not the location boundaries are convenient for them as well.
Source: mashable.com