Long term office lease with uncertainty on near term growth.
Your company is growing and somewhere on your laundry list of “TO DOs” is office space. Seems pretty straightforward right? But how much space do you need today? How much space will you need in 2 years? 3 years? 5 years?
As a real estate firm, we deal with scenarios like this every day. In fact, our Newmark team is living in this reality now as we have reached maximum capacity in our Seattle office, we need to add more people, and we have a handful of years left on our existing lease. Luckily, we have a few different business units that can back fill our space as we look for something bigger, but as a growing company how do you navigate this difficult scenario? How do you commit to a lease with so much uncertainty on near term growth?
SUBLEASE VS “OVERBUY”
SUBLEASE
There are currently 84 active subleases in Downtown Seattle varying in size.
Pros-
• Lease just the square footage you need right now
• Flexible term lengths ranging from 12 months to 60 months
• Reduced rental rates that are typically 20-30%cheaper than a direct deal with the landlord
• Often include furniture and are “plug and play”
• Less scrutiny on company financials
Cons-
• No tenant improvement allowance; forced to take the space “as is” or invest your own capital into the space
• Frequently moving offices which is disruptive and expensive
• No guarantee that you can remain in the space past the lease expiration
• Majority of the lease terms are non-negotiable since the master lease dictates situation
“OVERBUY”
Some groups have elected to take on more space than they currently need and grow into it over the course of a long-term lease.
Pros-
• Offset costs by subleasing a portion of the space to another company until it’s needed
• Eliminates the hassle/disruption of constantly moving offices
• Gives you more capital from the landlord for improvements to the space to ensure the office layout/environment aligns with the company culture
Cons-
• Can be very expensive and risky if the company growth is delayed
• Lack of energy in the space because there is too much space and not enough bodies
• Playing “landlord” to a short term tenant can be frustrating/stressful
SO WHAT’S RIGHT FOR YOU? HIRE AN EXPERT!
• We have a proven track record working with early stage companies
• Internal team tracking active subleases as well as shadow space opportunities
• Work Place solutions team giving real time trends on space utilization and ideas for consideration.
• Best practices and success stories from similar groups as well as common pitfalls
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