Getting Good Deals on Commercial Space in the Down Real Estate Market

The November 2011 issue of the ABA (American Bar Association) Journal ran an article (http://www.abajournal.com/magazine/article/lets_make_a_deal_small_firms_find_big_deals_on_office_space/) that spotlighted a Florida law firm that had taken advantage of the down real estate market, particular in the commercial sector, to purchase office space at a steep discount, drastically lowering what it had been paying in rent in its previous space, while upgrading to a much more functional and aesthetically pleasing space in a prime location. The article also highlighted other firms who had similarly used the down market to not only move to better office space at a lower price, but also negotiate perks such as reducing the space (and the rent!) to match the size of the firm, upgrading the facilities and providing custom build-outs, or even something simple such as free parking.

Although the the article focused on law firms, it points out a trend that start-ups in the market for commercial space can take advantage of. Entrepreneurs can leverage the slow commercial real estate market to negotiate with commercial landlords to obtain prices that can be very helpful to the bottom line of a start-up, or cover the cost of upgrading a space to meet the business’s needs (for example, installing a high-speed internet connection or a specific floor layout), or perks such as free utilities, parking, or coffee!

Of course, in order to obtain the best deals, businesses must be willing to commit to the space for an extended period — a landlord isn’t about invest in upgrades for a tenant that will only occupy the space for months, not years. It also goes without saying that a brand new start-up isn’t going to have nearly as much leverage as a start-up with a proven track record of several years (or more) of viability — a landlord is also not about to invest in upgrades for a tenant that may be out of business in six months! Nevertheless, there is room for negotiation for businesses at all stages of development. Don’t be afraid to shop around, or consider space that may not fit all of your criteria, especially if you can get the landlord to agree to provide you at low or no cost with most or all of what you need. And of course, it goes without saying that if you get a landlord or seller to agree to a favorable term, make sure it is written down in the lease or purchase & sale agreement, and that you’ve agreed to and written down your remedies if the terms are not fulfilled!

For the start-ups that may not be at the stage where they are ready to commit to leasing or purchasing commercial space, there are still budget-friendly options. The first is the sublease or office sharing option — many firms have space that they rent but do not use, and sublease that space to other businesses to cover the cost of that space, and with economic pressures affecting everyone, rents in commercial subleases are often negotiable. Such arrangements often come with perks, such as included utilities, use of common areas like office kitchens, conference rooms, or copy/fax rooms, or the use of the office’s receptionist staff — if such amenities are not included in the rent, they are often offered at very reasonable rates.

This practice is very common among law firms, but it is possible to find firms in a wide variety of industries that do it. It is often desirable and beneficial to find a sublessor in the same or similar industry as you who is willing to serve as a mentor, resource, or referral source. Of course, you should take great pains not to do anything that could be construed as interfering with your sublessor’s business or customers; and, most importantly, you and the other party should have an agreement that requires each party to make it clear to their clients that the parties are not in a joint venture or partnership together — too often do clients get the wrong impression regarding an office sharing arrangement or sublease and add hapless Firm B as a defendant to litigation over a transaction between Firm A and its client!

Another option for start-ups not ready to move into office space full-time is the virtual office option. Virtual office companies offer services that allow businesses to use the virtual office company’s center as its business address where the business’s mail can be sent. The virtual office company’s center will also have offices and conferences rooms that businesses can rent for the hour, day, week, etc., and where businesses can utilize receptionist, audio/visual, or copy/print/mailing services. Most virtual office companies offer these services both in packages and a la carte to meet the specific needs of each business; in either case, for businesses that don’t yet need a full-time office, virtual offices are significantly cheaper than having a full-time office. There is a mixture of international, national, and local virtual office companies in every city; the international and national brands often allow their clients to utilize their services at any of their locations, which is beneficial for the entrepreneur who does business on the road.

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