From their start-ups first days in a shared space or an incubator, entrepreneurs dream of seeing their company’s name on their own office door. But the nuts and bolts of finding that first office, and negotiating a lease that protects the interests of the growing venture, is a daunting prospect. If your company is facing this important milestone, take heart. The well-trod path from dream to reality offers plenty of wisdom to help you navigate the challenges and find a home for your company.
Find a Partner
The first step in finding the right office is to arm yourself with the knowledge and experience that only a skilled real estate advisor can offer. It won’t cost you anything—the advisor’s fees are paid by the landlord—and the guidance of a professional will likely help save your business time and money, now or down the road.
You will have many advisors to choose from, so it’s important to seek out a professional who meets your specific needs. As a new company, you may be forecasting rapid growth and will want to find an advisor who understands how to address your current and future needs. Also, use care in selecting your advisor to make sure he or she is representing your best interests, not those of a landlord. Finally, the old adage that all real estate is local holds true when it comes to commercial leases as well. Work with an advisor who has knowledge of the specific locations you’re interested in.
Build a Flexible Wish List
Once you’ve found the right partner, it’s time to get specific about the type of property you have envisioned for your company. Are you focused on a specific neighborhood? How important is proximity to public transit and restaurants? And, of course, does this wish list jive with a growing company’s budget? While it’s important to know what you want, be careful not to become too attached to a particular kind of building or location.
At Advocate, we once worked with a software client who had long ago outgrown their single-story suburban office and thought they’d found their dream space in a warehouse loft downtown. While the space certainly had the “hipness” factor they wanted, the warehouse had never been used as an office building and presented a host of challenges, including historical preservation restrictions, heating and air conditioning design and functionality, and a lack of parking. Ultimately the company decided this dream location came with too much risk and cost, and together we found another somewhat more conventional location that would serve their interests in the long run. It’s good to know what you want; it’s even better to make your decisions based on sound information and a careful consideration of costs and benefits.
Make Time for Test Fits
Once you’ve narrowed the field down to a few top contenders, your advisor and project manager will recommend conducting test fits on each. This process allows you to compare your options side by side and consider what life would be like for your company in each space. Your business plan and budget will help you assess the spaces under consideration.
Be sure to consider fixed attributes that your build-out cannot address, such as natural light and building infrastructure, and carefully budget for the true costs of opening an office. You will be responsible for the cost of improvements that exceed the improvement allowance offered by the landlord, cabling and internal infrastructure, furniture, signage, audio/visual, stationery and website updates, telephones and office equipment, and, of course, the security deposit. While this last one is not an actual cost, a significant security deposit can tie up needed capital or bank credit, and it’s important to think about how this might impact your finances in the first few months or year of the lease. Finally, don’t focus too narrowly just on cost per square foot. You also need to think about the number of square feet you would lease in each space, which will differ across sites, and that can have a pronounced effect on your total occupancy costs over time.
The physical space is just one piece of the puzzle. Next is the lease. For a growing company, the most important aspect of a commercial lease is the amount of flexibility in the terms. Most young companies don’t know where they’ll be in three years, let alone seven or ten. This means no new company should ever commit to a long-term lease with no way out—no matter how good the deal seems to be. But lease flexibility goes beyond just the length of the term. You’ll want to understand whether you’d have the right to expand into adjacent space as your company grows, or to contract during the lease term if your existing needs or growth turn out to be less than expected. And, of course, you’ll want to know about your rights to terminate the lease should you outgrow the space, acquire another company, or be acquired yourselves. Breaking a lease always comes with a cost, but terms vary, and your advisor will help you make sense of how the rules would apply in any number of scenarios.
Even when you have good information in hand and have run an exhaustive comparison of the spaces you’re considering, committing to a lease can be an intimidating decision. And this challenging process is complicated further when too many members of the company get involved in the process. A democratic culture that involves employees in decision-making is a good thing, but trying to give everyone a little piece of what he or she wants can sometimes lead to an office no one is very happy with. When it comes to a decision with such huge financial implications, management really needs to decide.
Leasing your first office is an exciting milestone in your company’s journey. It’s also an excellent opportunity to connect with a trusted real estate advisor who will be your partner, now and as your company grows into the future. Together you will find the office space that meets your needs, and you’ll have the new address on your letterhead in no time.
*This article was submitted to Techli by contributor Michael Webber, the Executive Vice President of Advocate Commercial Real Estate Advisors. Webber has 20-plus years of commercial real estate experience and has represented tenants in more than 40 urban and suburban areas throughout the U.S.