April 25, 2019
Startups are tasked with more than just navigating their own competitive landscape. Real estate is often the second-largest cost center for companies, posing a whole new set of challenges for many early-stage startups. Recognizing common pitfalls in the site selection and design processes – and understanding how these can be avoided – will go a long way in getting a new business successfully off the ground.
Have a home base. Many startups rely on working remotely or renting desks in a coworking space. However, this approach limits the ability to create a cohesive company culture and can create operational inefficiencies. Depending on the market, paying per desk becomes more expensive than a traditional lease at approximately 10 desks. Once a startup reaches that limit, it’s more efficient and cost-effective to lease an office.
Be proactive. There’s no such thing as a standard lease. Every transaction is unique and requires due diligence. Startups must begin a search for space with ample time to allow for research, changing market dynamics and competition. Lead time can vary depending on the market.
Rely on the experts. There is no upfront fee to the tenant for utilizing a local real estate advisor. The broker’s commission comes from the landlord of the building where the tenant ultimately leases space. Real estate professionals can do the research, coordinate tours and lead negotiations so startup founders can focus on their core business.
Consider subleasing. In many major markets, a short-term direct lease is considered three years. How many startups have the same budget, headcount and space needs as they did three years before? A potential solution is to find a sublease with about one year in remaining lease term. Generally, subleases are “as is,” which is great for companies looking to get straight to work. On the other hand, for startups looking to customize their space, subleasing likely isn’t the best option. Still, to help offset the cost of a longer, traditional lease, startups could consider subleasing part of their space in the beginning and taking over the space in full once the company has grown.
Design for density. Historically, companies allocated an average of 200 to 250 square feet per employee. That figure has condensed to 125 to 150 square feet per employee, meaning more people are working in smaller space. This can create distractions and interruptions, not to mention long lines for the restroom. With the company’s productivity on the line, it’s oftentimes worth the investment to hire a workplace strategist to maximize efficiency.
Create functional common areas. Allocating 1.5 to two employees to a desk means someone isn’t getting a seat. Instead, long tables with bench seating can double as desks for daily work and space for staff meetings. If leasing a space large enough for a common area isn’t in the budget, a real estate broker can help find a building that has communal work areas and building Wi-Fi so employees can still collaborate on-site.
Communicate company brand and goals. The look and feel of office space communicate a company’s brand and objectives. Is the company’s goal to host networking events? Impress potential investors? Recruit top talent? Facilitate research? Each of those objectives would lend itself to a different aesthetic. Company founders should explore the values they want their space to communicate so their building reflects that.
While there’s a certain amount of romanticism attached to a scrappy startup space, there comes a time when priorities shift. At the core of any startup’s office decisions -- whether related to floorplan, amenities, location, or the nuances of a lease – should be flexibility. The ability to strategize for unforeseen change is a juxtaposition that should be embraced.
A good real estate advisor goes far beyond aligning a company’s needs and wants with availabilities. They also ensure potential savings aren’t left on the table and that flexibility is added to certain provisions of the lease. Ultimately, they act as a partner looking out for the client’s best interests. And that’s the type of support both fledgling companies and established enterprises can appreciate.
Jack Seymour specializes in advising real estate strategy and providing tenant representation services for startups in San Francisco.
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