Top 4 Mistakes Startups Make When Leasing Office Space
Things to consider in preparing for searching and leasing new office space.
#1 Underestimate Timing
At first it may seem like a simple process to find, negotiate and secure a new office space. Unfortunately, it's not -- it takes a lot of decision makers, and different parties to come together to orchestrate a successful office search.
Let's run through a timeline of a space, that is turnkey and requires no construction
Phase 1 - Searching, Viewing Spaces | 1-4 weeks
Phase 2 - Negotiating Terms | 1-3 Weeks
Phase 3 - Solidifying and Executing Lease Agreement | 1-3 Weeks
Phase 4 - Move-In, Furnishing and Technology Setup | 2-5 Weeks
For a total of 5 to 15 weeks.
#2 Not Laying out your Office Space Goals Upfront
Neglecting to determine current and long-term priorities is the most significant mistake a company can make when looking for office space. Sit down, take a breath, and write out what is going to be important to you and your company when it comes to your office space. Your broker will be able to guide you in this process. The below points can act as your checklist when determining what is important for your office space.
Corporate Image – What image is important to convey to my customers, my partners, my investors, and my employees?
Layout of the Space – What type of environment does my business call for in the office? An open environment that creates collaboration amongst my employees, or a more traditional environment where certain employees have their own private offices for privacy or a combination of both.
Budget – What can I afford? Does my budget match up with my corporate image?
Growth – What’s the future growth of my company? Does my current office building/Landlord give me additional options to grow my business with limited interruptions?
Technology – Is there a certain technology that my business needs that is only available in certain locations? (i.e. Data Center, Electrical Capacity of a building, or Backup Power)
#3 Not Hiring the Right Team (Attorney, Space Planner, Architect, Construction, etc.)
Should always have an attorney review the Lease Agreement. Your brokers job is to negotiate the terms, an attorney ensures all the other terms and elements of the lease are smart now and five years from now. Do not make the mistake of hiring an attorney that practices out of your state, and/or does not specializes in commercial real estate, specifically. They may seem cheaper, and can be in the short term, but definitely not in the long term.
Hiring a Space Planner from the beginning will help you properly identify the amount of space your company needs, and how to properly utilize that space. If you're working with an office broker, they may be able to get you this for free!
Hiring the cheapest or most expensive architect and construction companies is a mistake. You want to find the folks that have specialization in TI (Tenant Improvement) Buildouts. Your broker should be able to recommend folks that have performed, delivered on time, and foresee potential problems ahead of time.
#4 Choosing the Wrong Office Broker, or Not Hiring One At All
Choosing the wrong office broker, or not using one at all, can be a costly error for any company and one that happens on a regular basis. An office space search or office renewal can take anywhere between 60 days to 2 years depending on several different factors. Either way, it is a significant amount of time to be dealing with someone. Make sure that you and your broker get along because it can be a miserable experience if you don’t. A company’s office space lease is usually a company’s 2nd or 3rd largest expense. The right broker will be able to reduce a big expense in your company’s bottom-line, and should further be able to protect your company’s interest on non-economic terms as well. Finally, make sure your broker knows the submarket that you are most interested in. We would say that a good broker should be able to predict the final rental rate of your office space ahead of time.
Most all office space leases signed in the Silicon Valley are done so with a broker involved on both the landlord and tenant side of the negotiations. However, we still run into companies that insist on looking for office space and negotiating their office space renewals on their own. Their main reason for not hiring a broker is because the decision maker thinks they will save money by not having a broker’s commission factored into the deal. This reasoning is valid because there is technically a 2% savings on the expenses a Landlord will have to pay for that broker’s commission. A good broker will generally produce on average a 10% – 25% improvement on the deal terms they have received from the Landlord. Finally, a company usually only deals with their lease every 3 – 5 years, while a broker deals with it everyday. Who do you think is more qualified? At the end of the day, by hiring the right office broker you will save time and money on your next office search or office renewal.
We have many real world examples of companies coming to us after months and months and months of search ending with no office, lots of stress, and their backs against the wall.