So you need an office space quickly, but need flexibility and don’t want to be tied into a long-term lease. What are your options?
There are times when flexibility is critical to an organization – entering a new market, acquiring or merging with other companies, launching a new product or service, or growing dramatically in the short term.
In these cases, you should first find a corporate real estate advisor who can help guide you through the process and then find and analyze the options. Their expertise and involvement also frees you up to stay focused on your business.
So here are five options that you should consider to solve your need for flexibility.
1. Executive suites
While this option will almost certainly be the highest cost on a per square foot basis, it offers the greatest flexibility, speed and features. The executive suite operator can often arrange for secretarial services, high-speed internet, fax, phones, copier, printer, receptionist, voice mail, and furniture rental, all in the matter of a few days. Some of these services are included in the base rent and others cost extra. You also get to enjoy shared amenities including a kitchen, conference room and video conferencing in some cases.
Rents in executive suites often start around $600-$700 per month for a standard size, interior office. The nicer the building, the higher the price, of course, so the price for a big corner office in a class A high-rise can easily be $1,500-$2,000 or more. But the price will also vary with the length of the lease term (3-6 months is usually the minimum) and the number of offices you lease.
Coworking is a style of work that involves an open shared working environment with many companies in the mix. Most people associate this with technology companies and young workers, but it’s catching on across all industries and demographics. A member of a coworking space pays a monthly fee and is assigned a desk when arriving each day, but it won’t be the same desk. There are conference rooms, a kitchen and other amenities shared by all. You may be able to lease an individual private office in some locations similar to an executive suite. You may also be able to rent a dedicated desk in the open work area where you can leave your stuff set up all the time.
When companies vacate their space prior to the lease expiration they will often offer it for sublease to reduce their remaining lease obligation. The rent is usually discounted from the landlord’s asking rent depending on the amount of time left on the lease and whether any furniture is available. For example, a sublease in a building where the landlord is asking $24.00 may go for $18.00 – $20.00. The shorter the remaining lease term, the lower the price.
If you need a longer term than what is left on the lease, you can often negotiate a wrap lease with the landlord. That is a direct deal which commences upon the expiration of the sublease. It allows you to enjoy the lower cost of the sublease and the certainty that you can stay in the space for a longer term.
Subleasing comes with certain risks, however. If the prime tenant is not financially stable and the landlord doesn’t get the rent, you could be evicted even though you were paying the subrent to the prime tenant. Subleases usually are leased in an as-is condition so any changes needed to the space would be your cost. That’s negotiable, of course, but rarely will a prime tenant pay for any significant improvements. Any options to renew, expand or terminate early in the primary lease are usually personal to that tenant and not transferable to a subtenant. Finally, the landlord must approve the sublease before you move in. If the business you are in does not mesh with the landlord’s desired tenant mix or another existing tenant would be your direct competitor, you may be denied.
4. Space sharing
Sharing space with another firm can provide flexibility as well. It’s sort of a hybrid between an executive suite and a sublease. Like an executive suite, you may share services like a kitchen, conference room, copier, etc. Because this is technically a sublease, it comes with the same risks as mentioned above, but with one additional issue – getting along with and trusting your roommate. You must trust the people in the other company and have compatible business styles. You wouldn’t want to have a law firm share with a loud collections company. These companies are both office users, but they use that space very differently.
5. Direct Lease
Don’t overlook the opportunity to lease space directly from a landlord. While they typically prefer a 3-5 year lease, I have seen them be very flexible when a prospective tenant explains the business reason behind the request. For example, one of my clients had been put in receivership, but they occupied office space owned personally by the former business owner. So they had to move quickly. We were able to find a few landlords who were willing to sign a one-year lease while the receivor stabilized the business and found a buyer. We even got a 5-year renewal option at a pre-determined rental rate so a new buyer of the business would know exactly what the lease terms would be if they kept the space.
In the final analysis, business owners and managers will always have to evaluate the trade-off between their desire for flexibility and the risks and costs of actually having it.
Bob Gibbons is a Real Estate Advisor & Tenant Advocate with REATA Commercial Realty, Inc. which is a tenant advisory firm based in Plano, Texas. Bob serves companies in Plano, Frisco, McKinney, Allen, Richardson, Addison, Dallas and the surrounding areas and specializes in companies which lease or buy office and warehouse properties.