In today’s rather sophisticated commercial real estate industry, overlooking even the smallest detail in the lease negotiation process can have adverse effects on your final lease agreement.
An Inside Look at How Commercial Real Estate Can Help a Startup Succeed
To gauge accurate costs for investors, a startup must gain a thorough understanding of their total expenses. After employee salary, a company’s second most expensive line item is rent. Having market knowledge in all aspects of the real estate transaction will have a positive economic impact. This includes rental rate and annual increases, operating expenses, occupier improvements, and rent abatement. Aside from these deal points, it is important to understand the difference between leasing vs. subleasing vs. co-working and the limitations with each of these real estate options.
The space needs of a startup depend on the stage of development and what’s most important to the company at the time. Young startups want to find a balance that allows the flexibility to grow without draining funds. The more established startup, while gaining more employees and more funding, will want to consider the parallel between real estate choices and how they will address needs and reflect overall company culture.
Regardless of stage of development, real estate decisions are difficult for startups since it’s unknown how fast the company will grow and even more difficult to determine the number of new employees they will acquire. A space too small can affect productivity and quality of work environment. A space too large will leave the company with unnecessary overhead.
A real estate professional provides a startup with the market insight they wouldn’t have on their own. Advisors have access to available spaces that are both on and off-market as well as a firm grasp of all aspects of real estate transactions. To navigate the world of commercial real estate without professional help would prove costly, not just in missed opportunities to lower cost, but in loss of valuable time. For someone running a startup, every minute counts. A leader's time should be spent focusing on the company, not trying to address real estate needs without proper guidance and expertise.
An advisor will connect with building owners, identify a list of potential sites that will best fit the occupier ’s needs, arrange a tour of these site, and negotiate a lease once a selection is made.
Hiring the right advisor can bring much added value to the transaction. From identifying real estate needs to finding the true cost of a startup's potential space (including the hidden charges), an advisor’s market knowledge will ensure a favorable outcome. The right advisor has the advantage of knowing sublease opportunities with shorter lease terms and lower securitization required when signing the lease
Since most startups don't have a significant operating history, they are at a disadvantage when it comes time for negotiations. Companies without a rent history can expect to pay a large deposit of months or even a year of rent up front. For a young business still trying to get their footing, this can cause a roadblock in their plans. An advisor who is familiar with these difficulties can present a startup in a more favorable light, creating leverage for stronger negotiation.
An advisor who is well-versed in negotiating on behalf of occupiers and only works with occupiers is better equipped to handle a startup’s needs and avoids the inherent conflict of interest that comes with agency advisors who also work with the landlord.
With a single-minded approach, the right advisor will make a startup's real estate decisions easier to keep them on a path to success. They can help navigate challenges many startups face by creating flexibility to meet changing needs, create the right workplace environment, and save a company its most valuable resources: money and time.
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James is the VP of Project Management and is responsible for PM initiatives for Cresa’s Portland office. As the single point of contact, James oversees strategic planning, design, construction, move management, and the close-out process. His primary objective is to understand his clients’ needs so that he can deliver services that save his customers time and capital.