3 Options For Businesses Renting Office Space | In Depth Analysis

Looking for office space for your business?  This can be a challenging process.  You’ll want to make sure to ask key questions before signing a lease in order to avoid some major relocation mistakes.  And, more than one option exists for renting office space - another decision you’ll need to make.   

I’ll outline the pros and cons of these different options for renting office space in the below article.

Office Space Option 1: Standard Lease

These are by far the most common lease type for office space.  It’s the traditional model for leasing an office.  A business signs a comprehensive lease agreement with a commercial landlord, and this lease outlines both parties’ contractual rights and responsibilities. In terms of pricing, standard lease rates will vary by A) market, and B) quality (Class A, B, or C).

But, just because these leases are common doesn’t mean you should jump right into one - or renew your existing lease.  Here are the pros and cons associated with this sort of arrangement:

Pros

●      Long-term solution: When you sign a standard lease, you commit to a long-term solution for your business’s office needs.  This duration provides you the stability to focus on what truly matters - operating your business. 

●      Control: By signing a lease directly with your landlord, you control the fate of your occupancy.  If you break a lease covenant, it’s your fault – not another tenant’s. Similarly, if you want to negotiate a lease revision, you can go straight to the landlord. 

●      Company culture: Standard leases provide office tenants the most flexibility in making the space their own.  You’ll likely receive an initial tenant improvement allowance from the landlord.  You can use this allowance to structure the space to support your company’s unique culture and vision. 

Cons

●      You’re stuck: While standard leases provide long-term stability, this comes at the cost of locking you into the situation.  If operational changes lead you to break the lease early, you’ll likely need to A) pay a fee, or B) potentially face a lawsuit.   

●      Upfront costs: When you sign a standard lease, you’ll likely need to pay significant upfront costs.  These include deposits, office furniture purchases, wiring, and any improvement costs exceeding your allowance. 

Commercial real estate professionals can help you identify office lease opportunities for your market and unique situation.  Need help connecting with reliable ones? Drop us a note!

Office Space Option 2: Subleased Space

Many businesses lease more office space than they currently need.  In theory, a growing business will need more space in the future.  As a result, many decide to sign a standard lease for a large space, confident that they will grow into it. 

But what happens to this unused space now?

Many businesses in these situations choose to sublease this excess office space to other businesses.  This creates a lease between three parties: 1) the landlord; 2) the sublessor (the business with the extra space); and 3) the subtenant (the business leasing the extra space).  For certain businesses, finding office space as a subtenant can be a great opportunity.  Here are some considerations:

Pros

●      Flexibility: Subleases offer two-fold flexibility.  First, businesses can typically negotiate shorter lease terms that include flexible extension clauses.  This balances long-term planning with the ability to back out if your situation changes.  Second, subtenants are generally allowed to make aesthetic changes like painting and signage to their space to support their identity and branding.  

●      Cost: Typically, a sublease agreement costs less than a traditional lease.  Businesses occupying a space as subtenants have less control, so these agreements tend to have lower rates than market.  Additionally, you save money in upfront costs, as these spaces are often already furnished.

Cons

●      Limited negotiating power: In a sublease agreement, the original tenant (the sublessor) has the primary obligation to the landlord.  With or without a subtenant, this tenant still needs to pay rent.  As a result, the landlord doesn’t have any major incentive to offer the subtenant any lease concessions or perks. 

●      Availability: Most markets simply don’t have much available office space for sublease.  Consequently, businesses seeking this sort of arrangement may need to make location and quality sacrifices for it to work.  However, if opportunities do exist, a commercial real estate broker will help you find them. 

Office Space Option 3: Coworking

Coworking may have taken an image hit due to UpWork’s derailed IPO, but this office set-up remains a great opportunity for plenty of businesses.  In a coworking environment, multiple tenants share the same workspace.  Typically, this shared space is meant to create a level of collaboration between tenants. 

And, coworking tends to be scalable.  With a la carte options, most coworking spaces allow you to lease any combination of the below:

●      Common area access

●      Single desks

●      Private offices

●      A separate area just for your team

Here are the major pros and cons to choosing a coworking option for your office needs:

Pros

●      Collaboration opportunities: When you work in a coworking space, you work with other people and businesses.  This close proximity creates the potential for collaboration and networking opportunities that likely wouldn’t arise in a traditional office environment.   

●      Significant flexibility: Of these three lease options, coworking offers the most flexible terms.  Most spaces allow month-to-month leases (or memberships, in some cases). For new businesses, this lets you focus on actually getting your operations up and running. 

●      Low initial costs: Coworking spaces A) are already furnished, and B) typically don’t require large deposits.  This means that you can move into a space and start working right away - without major initial costs. 

Cons

●      Privacy and personal space:  These represent the negative side of the collaboration coin.  Inherently, coworking spaces mean your business will have less privacy and personal space. 

●      Major scaling costs: As you grow your business, you’ll pay significantly higher rent per square foot in coworking spaces than with a standard lease.  These spaces are typically designed for start-ups and freelancers - not stabilized businesses.  As such, it’s not uncommon for larger businesses to pay as much as three times more per square foot in a coworking space than they would in a standard lease.

Feel free to drop us a note if you need help analyzing office space considerations from a commercial real estate perspective.  This can seem challenging, and we’re happy to help!

Final Thoughts

Relocation represents a major operational and financial challenge for any business.  And, determining the best lease structure for your unique situation represents just one decision you’ll have to make.  Businesses should conduct a full needs analysis (e.g. size, location, layout, infrastructure requirements, proximity to customers, etc.) before making any major office space decisions. 

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We recognize that, even after outlining the above information, identifying the best office space option for your unique situation can seem daunting.   

That’s why we’re here to help.  The Pocket Broker team lives and breathes commercial real estate, so drop us a note to see how we can help you achieve your unique objectives!