TurnTo10
The Do's & Don'ts Of
Renting Office Space
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FOR MANY SMALL BUSINESSES, it's a sign they've finally
arrived. Moving from the cramped home office
to a leased space elsewhere often coincides with the hiring of employees or a
growing roster of clients or investors.
And in many markets, leased office space comes remarkably
cheap these days, says Marilyn Lissner, a senior director in the
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Also See |
Of course, national trends may or may not hold true in your
local market. And to get a good deal, you need to be a savvy scout. Here are
six tips on securing the right space for your small business.
Think Modestly
After years of toiling away in your basement, garage, dining room or home
office, it might be tempting to think big when envisioning your new office
space. But don't overestimate the amount of space you'll need. Conventional
wisdom holds that a business needs about 200 square feet per employee, says
Lissner. But if you're thrifty, she says, you might be able to make do with
less.
If it's just you — or if you have one or two employees — you
might want to consider sharing space in a fully equipped office suite. In such
cases, the furniture and equipment are ready to go — you just sit down and plug
in. Although the fees for such spaces can be high, from $150 a month for a
single office room to $2,000 a month for several rooms including a conference
area, the amenities they offer, like copying, fax, Internet and phone services,
might be valuable during a business's startup phase, when it needs to invest
its capital in marketing more than in office equipment. To search for shared
office space or executive suites in your area, try these sites: www.officefinder.com; www.cityfeet.com;
www.searchofficespace.com; www.Regus.com; www.offices2share.com;
and www.obcai.org.
Another option: subletting a room or two from an existing
business with some space to spare. Here, you can split expenses like the phone
bill, Internet service or air conditioning, and you might be able to score
temporary use of free office furniture or other equipment.
Long-Term Commitment Issues
For burgeoning small businesses, securing the right office isn't about
location, location, location. It's about flexibility, flexibility, flexibility.
Committing to a long-term lease could be financially
devastating if your business doesn't grow as expected, warns David Townsend, a
director at Cushman & Wakefield's
Small-business owners often don't have a clear vision of
what their company will look like in five years, and their real estate choices
should reflect that. Be sure to find a landlord with several different kinds of
spaces to offer — and one who is willing to accommodate changing needs.
Ideally, if your business outgrows one space after a few months, the landlord
company would move you to another floor or area of the building or help you
find another space within its portfolio.
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The Price of Office Space |
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CBD* |
Non-CBD |
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Location |
2005 |
2006 |
2005 |
2006 |
|
|
$20.28**
|
$19.84
|
$19.56
|
$19.79
|
|
|
30.34 |
31.25 |
21.56 |
21.69 |
|
|
26.60 |
26.84 |
21.30 |
21.32 |
|
|
18.84 |
19.17 |
15.69 |
15.94 |
|
|
19.16 |
19.30 |
21.73 |
21.72 |
|
Los Angeles, CA |
25.41 |
25.86 |
19.70 |
19.92 |
|
New York, NY |
47.41 |
48.34 |
N/A |
N/A |
|
Oakland, CA |
23.18 |
24.13 |
22.02 |
22.48 |
|
Orange County, CA |
38.67 |
26.20 |
22.73 |
23.69 |
|
Orlando, FL |
22.32 |
22.62 |
18.43 |
18.39 |
|
Philadelphia, PA |
22.94 |
23.14 |
22.83 |
22.94 |
|
Phoenix, AZ |
17.59 |
17.79 |
19.75 |
19.75 |
|
Portland, OR |
18.78 |
18.89 |
18.88 |
18.91 |
|
San Francisco, CA |
29.24 |
30.41 |
22.76 |
22.58 |
|
St. Louis, MO |
16.27 |
16.26 |
19.76 |
19.68 |
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* Central Business District |
Birds of a Feather
In some cases, there might be an advantage in setting up shop near businesses
like your own — a phenomenon known as clustering. Collaboration among startups
can be essential to their survival, and side-by-side competition for customers
among most small businesses is often a good thing, says Townsend.
"Strangely, it can turn out well," he says. "If you have two gas
stations on opposite corners, instead of one making less money, they both make
more."
Biotech and software companies, for example, often operate
near each other so that they can share expensive lab equipment, trade
strategies and collaborate on projects. Retail businesses also often cluster
together, enabling customers to do one-stop shopping. And sometimes zoning,
parking, cost and space requirements mean that certain types of businesses will
naturally end up next to each other. High-end retail stores and boutiques, for
example, often end up on the same main strips through town because restrictive
zoning laws prevent them from setting up elsewhere.
Clustering comes with some potential downsides, of course.
Most notably, there's an increased threat that a similar business might steal
proprietary information or employees, says Steven Price of Benson-Price, a
commercial real-estate firm in Colorado Springs, Colo. Evaluating whether
clustering will be helpful or hurtful depends on the kind of business you're
running and the type of customers and employees you're trying to attract.
Setting up a call-center company near another one in your area might mean your
best employees could be lured away by your next-door competitor. But if you're
running a retail shop and hoping your products will appeal to college students,
it might be wise to muscle into office space near the campus, no matter how
many nearby businesses are selling similar products.
Landlord or Slumlord?
It can be a good idea to check a potential landlord's references. Talk to
current and former tenants about the landlord. Has he or she been good about
fixing problems fast, or lenient in negotiating lease terms?
Don't be thrown off if the landlord you're dealing with is
skeptical about working with a new small business. Like the bank, a landlord
just wants to get paid, so don't be offended if he or she goes to great lengths
to check up on your personal or business credit history. In dealings with the
landlord, act professionally and make a well-crafted pitch — just like you
would to the bank or any outside investor — about the viability of your
long-term business goals.
Dirty Details
As always, it's essential that you read and understand all the terms in your
lease. Among other things, check to make sure that nothing about your business
— a sign in the window, the use of hazardous materials or equipment, unusual
hours of operation — will violate the terms of your lease.
It's especially important not to overlook the "work
letter," which is a document attached to most commercial leases that describes
the standard fixtures, upgrades and repairs the landlord is willing to pay for,
like doors, lighting and carpets. When a new business moves into a space,
there's almost always some sprucing up to do, says Jim Osgood, a commercial
real-estate broker in
Many landlords prefer to hire a particular contractor to do
the work, and might agree to fund improvements up to a certain point, say $20
per square foot, says Osgood. In such cases, tenants are generally responsible
for any overages. Make sure you negotiate these amounts upfront before you sign
a lease agreement.
Finally, before you sign, be sure to run the final paperwork
past an attorney. Depending on hourly fees and the length of the lease, an
attorney usually won't charge much to look it over. Whatever it costs, says
Lissner at Cushman & Wakefield, will be money well spent.