As a startup, finding office space can be a bit tricky as your office space needs might be very different six months from now. You probably can’t predict how many employees you will have in a few years or what your company’s financial position will look like. Let’s be real, you may not even be around in three years. That being the case, you are looking for flexible office space. You don’t want to sign a 3-5 year lease because what you need today will not be what you need then. So what are your options? Luckily, the options for flexible, short-term office space are more plentiful and easier to access than ever.
There are several additional challenges startups must work through in order to get situated. Let’s first take a look at a few reasons why traditional office space might be a challenge for startups.
Landlords may think your business is cool and has great potential, but at the end of the day, they aren’t thrilled to lease your company office space. Why? First and foremost, you are risky. Your business is much more likely to default than a fortune 500 company. You are like a guy with a credit score of 400 who’s asking a bank to loan him money to buy a Maserati. Second, they know you don’t want to sign a long-term lease. The value of a building is based in large part on future cash flows. Short term leases aren’t as valuable to owners.
Startup businesses are dynamic. If successful, they will outgrow their space quickly. They need the flexibility to expand or contract as their business changes. Landlords look for 3-10 year leases. You probably don’t want to sign a 5 or even 3 year lease without any termination options.
Since you are at a greater risk of default, the landlord will more than likely want a larger-than-normal deposit, unless you have the financials to prove otherwise. A security deposit can range from one months’ rent to 1 year of rent.
Typically, it takes 4 -12 months to find a space, negotiate the terms, and complete the tenant improvements. You don’t have that kind of time or energy. By the time you’re ready to move into the space you select today, you will need something very different!
The good news for startups is that there are a lot of options for flexible options that have been created to service the needs of young companies. Just a few years ago, the only real option was Regus or other providers of executive suites. Today we can divide the options into four primary groups: spec/flex suites, coworking space, shared space, and executive suites.
Spec and Flex Suites are office suites that are already built out and ready to be occupied. They range in size from a 6 person (1,000 SF) office to a 30 person office (5,000 SF). You can get in these spaces quickly and with shorter lease terms. Of course you will be paying a rent premium for the flexibility, but in many cases the flexibility benefits will exceed the increased cost. Many landlords will allocate 5-10% of their buildings to ready-to-go spaces. This would be a direct lease with the Landlord, but since the suites are plug-n-play (no tenant improvements), they will generally entertain a shorter term. They are generally unfurnished.
Coworking spaces are a great option for small companies with just a handful of founders/employees. It is fast and easy to get going. No long-term 60-page leases to sign. Typically users of coworking space pay a monthly fee for the desk or area they are renting. Many coworking spaces give you the option to rent by the hour, day, or month. You will also be close to other companies (typically startups). The office layouts are generally very open, modern, and vibrant. It’s a good place for those who enjoy working around other people. For those that prefer their own private office, this probably isn’t your best bet. Coworking spaces come will ample amenities not found in traditional office leases. They come with Wifi, refreshments, and many times have workshops and events. They are generally fully furnished as well. WeWork is the largest coworking space provider.
A less common option for office users is to share available space within an existing company’s space. Think Airbnb for office space. A few entrepreneurs have created open marketplaces connecting companies with extra space to companies or freelancers that need space. The best sites to find shared space are LiquidSpace, ShareDesk & Pivot Desk. There is even an app called Breather that lets quickly and easily book office space.
Executive suites are the oldest and most boring of the four options. Regus has been the largest provider of executive suites in the US. They are fully furnished and ready to go. They provide typical, corporate-like space available on short-term lease options.
The first time I heard the phrase “virtual office space” I couldn’t help but think that this was one of the most hyperbolic things I had heard in quite some time. I do believe, however, that virtual office space can be a very valuable and clever option for small businesses, especially those operating out of a home, to present themselves as an established organization operating out of a top-tier office. Virtual offices provide an address and services for a fee, without providing dedicated office space. The most interesting virtual office package is by Servcorp at One World Trade Center in NYC. For about $400 per month, you can use the One World Trade Center address, a telephone number answered in your name, access to meeting rooms, 3 days per month of private office space, and 3 hours in the coworking space. For $200 per month, one can get access to all the perks mentioned above minus access to physical office space. I may have to get this package to take my blog to another level!