• May 13, 2016

10 Questions to Ask Before Leasing Your First Office

10 Questions to Ask Before Leasing Your First Office

This post was contributed to VentureApp by Robert LeClair, the managing director & partner at Boston Realty Advisors, a full-service commercial real estate brokerage and consulting firm.

If your company is doing well and growing – congrats! It also probably means you need to consider first-time office space to house your growing team. Before doing so, here are the 10 questions you need to ask yourself before getting started:

  1. Is your company ready for the commitment? Renting office space is a commitment. Unlike renting an apartment, the shortest office leases are typically 2-3 years, and many are five years or longer. Can your company make that commitment? If not, WeWork, CIC, Regus, and PivotDesk are flexible alternatives that offer shorter term leases (monthly or yearly) and can serve as a stepping stone for your company to get off the ground. Subleases are another option; typically offering below market rents with furnished and wired space. These are still fixed term agreements but are often shorter than three years.
  2. Okay, you’re ready, but have you talked to an expert? A commercial real estate broker is the best resource (your mom’s friend who sells homes in her community probably isn’t the best person to talk to). Get a couple referrals and do your research. Pick a firm and a broker you trust, like working with and has at least 10 years of experience working in the market you want to locate your company. Working with them exclusively ensures your company is taken seriously in the market and your broker can leverage their experience and expertise to your benefit. Landlords pay all broker fees so this really is a no-brainer if you want to save time & money.
  3. What is your budget? Your startup is funded, you need to hire more employees and continue to improve your product. Next to payroll, an office lease is one of your largest fixed expenses. Plan your budget for space accordingly. Consult your advisors and your broker. Understand all the cost: upfront cost (outlined in #4) and additional lease costs beyond base rent like – utility costs, increases in operating expenses and taxes in later lease years, telephone, internet and insurance. Lock in a number that is sustainable and realistic (for your company and the type of space your company needs).
  4. Do you understand upfront costs? Here’s the typical breakdown –
    • Security Deposit – 1-6+ months of rent (cash or letter of credit) depending on the landlord and the economics of the lease transaction. Be prepared to provide financial information on your company. A P&L and balance sheet and/or bank statement showing some history are ideal. If you are sensitive sharing this information, ask the landlord to sign a non-disclosure agreement (NDA).
    • Attorney fees – Yes, you should have a qualified attorney review your lease. It can save you from worst case scenarios down the road. If it is a small lease, some attorneys work on a fixed dollar amount.
    • Furniture – Used furniture vendors are plentiful or if you want to buy your own, consider Ikea for cheap and functional desks. You will likely need a licensed moving company to move you and setup the space – make sure you know the cost ahead of time.
    • Telephone/Data Setup– Get Comcast or Verizon on notice early as this can take more time to setup than you think. New office space is great but if you can’t email your customer when the lease starts, you can’t run your business. A good rule of thumb is $100 per data drop – and be specific if you rely on a separate phone and data line.  Also, don’t forget to include your conference room and break area. Putting together a furniture plan will account for every spot and will also ensure wires aren’t stretched across the floor.
    • Commercial Liability Insurance – You will need a policy that covers your business to operate in office space. This has to be in place before you can move in.
    • Tenant Improvements – You found space that needs a little love and the landlord isn’t paying for it as part of the deal? Be prepared to hire a licensed contractor to make the space your own. A little can go a long way. Also, understand if your building is union or open shop. This will dictate who can do work in the building on your behalf.
  5. What kind of headcount growth do you expect? Growth can be critical to success. Work with your broker to understand how your headcount will impact your space needs. If you are 10 people growing to 20 in the next 18 months, build that into your upfront space plan. It will often be less disruptive and costly in the long run. Take your proposed floor plan and do a maximum density seating plan and then work backwards from there. Growing to 25 people or beyond in the first three years? Choose a building, landlord and space that can grow with you:
    • Expansion rights on more space
    • Rights to sublease or PivotDesk
    • Clear understanding of how the space can be augmented or expanded if headcount outpaces the existing premises
    • Landlords who have multiple buildings in the area you are looking to be – if you can’t grow your company in your current building you might consider another building owned by your landlord down the street
  6. What is your location preference? You should pick a location that allows your company to be successful, not necessarily one that allows you and your early employees to walk home for lunch. Convenient public transit, parking (if necessary) and food and service amenities that are close are all important early factors to consider. Some neighborhoods boast considerably less expensive office space than others. Work with your broker to understand the cost/benefit of each submarket and what makes the most sense for you and your employees.
  7. What is your office culture? Chances are you have an idea about who you are as a company and some very simple things can help your office space align with that identity. Location may be #1, and space layout/design and simple thing things like paint color might be a close second. Some minor and inexpensive changes to a space can quickly transform the space into your own. Don’t over invest! This space is temporary and as you grow the company the culture will transform. Google creates much of its space experience with cool colors and furnishings, but make sure that your business spends money where is will have the greatest impact. Offering your employees more accoutrements may outweigh paying for “cooler,” more expensive space.
  8. Have you considered WE vs. ME space? Building on culture, more and more companies are opting for an open office layout. It is efficient, flexible and collaborative. But, make sure the open “WE” space is balanced by “ME” space for private meetings/calls and quiet personal production time. The biggest complaint I hear from early stage startups is the need for more meeting space in their office. Build it into your plan early on so the space withstands your company’s growth.
  9. Do you know your lease inside and out? I can’t stress this enough. Read the lease, have an attorney review and explain everything you are signing up for: the risks, liabilities and costs that you will or could incur. Have a plan if the business doesn’t work out and understand your options as it relates to the lease, i.e., subleasing rights, default provisions, and the extent of your liability as a company.
  10. Is your lease readily available? Emerging companies change quickly. Be proactive with your office needs. Lease rates, landlords and other companies are always changing so make real estate planning happen quarterly, aligning it with your business plan and getting ahead of any changes in your needs. Leases are for a fixed time period but there are often creative solutions at your disposal to address changes in real estate needs.

Have any other questions you need help answering? Ask a broker. You might learn something that can help your business be more successful.