Finding Office Space For Your Startup or Small Business

Finding Office Space For Your Startup or Small BusinessFinding and leasing office space can be one of the most exciting and disruptive things you must do for your business.  Below is a handy roadmap to help guide you through the process.

How do you get started?

Before you start looking for space you want to spend some time to clearly define your current and future business & real estate objectives.  By doing this you will avoid disruptions and increase the effectiveness of your search.  You want to make sure everyone involved in the decision making process is on board with the company's objectives, budget, and specifications, AND that they all understand the process and time that it takes to make this successful.

  • What is your current and future headcount?
  • Do you have special technology requirements?
  • What is your ideal space configuration?
  • What is your timing and budget?
  • Do you have any special parking or transportation requirements?

Who should all be involved?

Ideally you want to have one person (most experienced in operations/facilities) in your company that oversees the project.  They will be the main point of contact.  It's also a good idea to select a representative from IT, HR, and finance to be involved in the project as well.

Hire a commercial real estate advisor that ONLY specializes in tenant representation.  Especially one that has a lot of experience in working with startups and newer businesses.  Startups have special needs and an advisor familiar with the intricacies of startups will be able to promote their tenancy to landlords.

Hire an attorney that specializes in commercial real estate lease transactions.  Most office lease contracts are 30 to 40 pages long and are NOT typically tenant friendly.  A good attorney will help ensure that the lease terms are fair and help you avoid any pitfalls down the road.

When should you start the process of finding office space?

Most startups and small businesses underestimate the time it takes to find and lease office space.  While it is possible to find and lease an executive suite or small office (100 to 2000 sf) within 30 days, it general takes longer than that………if you do it right.  A general rule of thumb is that if you are leasing less than 10,000 sf you want to start searching at least 4-6 months before you need space or before your existing lease expires.  If you are leasing more than 10,000 sf then start the process at least 6-12 months before.

Keep in mind that the above mentioned timelines are a general rule as there are a number of factors that affect the timelines.  Factors such as the size of space, existing condition of the space, market conditions and available space, permits and finish out timelines, etc.

What financials will be required to secure the lease?

Landlord's like to have the best credit tenants possible.  The better your financials look the better your chances of negotiating concessions.  If you are a startup landlords may want to see your personal tax returns, bank statements, a larger security deposit, personal guarantee, letter of credit, or other forms of a security deposit.  If you are an existing tenant with a track record of strong financials then profit/loss statements and balance sheets will suffice.

Be cautious with personal guarantees.  If you default on the lease then the landlord can come after you personally.  If you have to sign one then negotiate to put a cap on a maximum amount.

What are my options for leasing office space?

If you are a startup or new business there are many alternatives to leasing your own office space.  In a strong office market landlords will typically push for 3-5 year leases when leasing directly from them.  If you are unsure of your business situation and need shorter flexible lease terms then you might consider subleases, shared space, incubators, executive suites, or co-working space.  Each of these options have their pros and cons however they will have more flexible lease terms then leasing direct with a landlord.

Subleasing office space is a great alternative because you can typically get them at below market rates, however you will probably have to take is “as is” and for the remaining term left on the lease.  So if there is 2 years left on the lease it's not likely that they would agree to let you sublease for only 1 year of that remaining term.  Check out this post for advantages and disadvantages of subleasing office space.

How to find office space options

Once you have defined your commercial real estate objectives and have your team in place you are now ready to start searching for office space.  There are many ways to go about finding office space however the best way is to simply work WITH your tenant representative.

How much office space do I need?

Historically the general rule of thumb has been to lease 200 to 250 sf per person HOWEVER with the rise of the mobile workforce and more efficient office space plans it is now ranging from 150 to 200 sf per person.

  • To determine your office space needs get a current headcount and then estimate how many people you will hire each year for 3-5 years.
  • Every space is different as some are more efficient than others.  Depending on how a space is layout out a 4,000 sf space in one building might fit better than a 5,000 sf space in another one.
  • When possible try to get renewal options and expansion rights to any contiguous space.

Narrowing your list of office space options

You will need to tour each space with your broker and determine which spaces meet your business and commercial real estate goals.  By comparing each option to your business and real estate objectives you will be able to narrow down your options to a manageable list.

  • Lease term – The longer the lease term your business is willing to do the more options you will have.  However don't get pressured into signing a long lease.  You need to make sure it's right for your business.  It may take a bit longer to find the right space however be patient and wait for a space that suits your needs.
  • Lease rate – Don't just focus on lease rate.  Instead determine what your maximum monthly rent budget is and stick to that.  Focus on comparing each space based on the total monthly costs that may or may not include parking fees, electric and janitorial costs, furniture, tenant improvements, and relocation costs.  Stick to your budget and focus on only those spaces that don't exceed your budget.
  • Office layout – No two office spaces with the exact same square footage will be the same.  For example you may see a 5,000 sf space in one building that is a perfect rectangle that is much more efficient than a 7,000 sf triangular space in another building.  Make sure that your final options have layouts that either meet your ideal office configuration OR that can me constructed to meet it.
  • Amenities – Identify your ideal amenities up front and pick only those spaces that have them.  Do you want a fitness center, deli, covered parking, security, fiber lit building, or other amenities?
  • Parking – How is the parking in a particular building?  How many parking spaces do you think you will need?  Don't just take the landlord's word for it that there is plenty of parking.  It's good to actually walk the parking lot to see how full it is.  Do you need covered parking or is surface parking ok?  Is there a charge for parking?

This office leasing guide provides just the basics of how to get started in finding and leasing office space for your startup or small business.  There are many other factors to consider however this post would then be 50 pages long!  If you have any questions on getting started or would like assistance with your office space search don't hesitate to give us a call.

 

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