Here are five essential factors to keep in mind when looking for space in the beginning stages of a company.
1. Focus on Location First
While there is a temptation to cut costs by looking at the least expensive options, cheap space is generally in less central locations, meaning the team will have longer commutes. In the first few years of a company’s life, the founders are usually working overtime, and every minute is valuable. The first space that a company leases will likely be smaller than 4,000 square feet, so the cost per square foot premium between the preferred location and an inferior one isn’t material. For example, a $4,000 per month premium for 4,000 square feet might sound like a lot of money to a startup, but with 20 people in a space of that size, that’s an incremental cost of $1.00 per hour per person given a 200-hour work month.
2. Think About More than Money
Don’t let rent alone drive your decisions. Better space will have an impact on company culture, the ability to recruit and retain talent, and the outcome of work product if the office fosters creativity and inspires people to work hard. Having a location that has amenities such as a fitness facility or food service on site will help attract key early employees. It will be worth the extra cost to have a space that is safe, clean, professional, and is in a well-maintained building with nice restrooms, reliable air conditioning and elevators. While that generally means paying more, most companies see the value in that decision.
3. Measure the Right Amount of Space
Many early stage companies either lease too much space and expect to grow into it, or not enough space to have room for future growth. I recommend initially taking a space to accommodate the first year’s worth of growth. Most early stage companies with an open office configuration can plan for 160-170 square feet per person, which includes the break areas, conference rooms, storage, utility areas, reception lobby, restrooms, and more. For example, if a company needs space for 10-20 people, 2,000-4,000 square feet would fit a team of that size nicely.
4. Select Shorter Lease Terms
Do not sign a lease longer than your company has been in business. A five-year lease is standard, but can be fatal to a company that has only been in business for two to three years. For smaller spaces below 5,000 square feet, many landlords will consider a shorter term lease for 2 years, as long as the landlord does not have to spend tenant improvement money. There are also coworking solutions, and the market always has “plug and play” sublease space available as well.
5. Find a Tenant Representative
Most commercial brokers do not work for you as the tenant, but rather for the landlord of the building you are considering. These real estate professionals will always outflank the entrepreneur at the negotiations table. Find a broker who only represents tenants and is going to be on your side—who is complete in their sourcing of spaces, including subleases, and will be an advocate for your company’s needs without dual agency conflicts of interest.
About the Author: David Marino
David Marino is executive vice president and co-founder of Hughes Marino, a commercial real estate firm committed to only representing tenants in their lease and purchase transactions of commercial space. David has been exclusively representing tenants since 1991.
