If you are a small business owner who is thinking about renting office space, this article is for you. Whether you are a sole practitioner who wants a change from working in a home office, the owner of a growing business who needs to procure space for yourself and one or more employees, and/or someone who just needs access to a business center to meet with clients and customers, there is a lot to think about before you sign that lease on the dotted line.
While you are determining how much commercial office space you need, choosing the type of space that works for you, and determining which commercial lease terms best suit your situation, it is important to have a system to help you track operating expenses. The following addresses all of these issues.
Determine How Much Space You Need
The first thing you need to think about is how much office space you are going to need. Do you just need a desk and a chair in a quiet place to get your own work done or do you need a place to meet with clients? Do you have team members to take into consideration and, if you do have staff, how much square feet of space do you think you will need per person?
It is important to choose a space that not only fits your current business needs, but that will also accommodate anticipated growth. Finding the right balance regarding current needs and anticipated growth can be a challenge. You don't want to shell out cash each month for space you aren't using but you also don't want to have to incur the expense of moving to a larger office building, especially if you think your firm will grow into a need for more space during your current lease term.
Think about how you and your employees will get to the new space. If people typically drive to work, you will want to make sure there are ample parking spaces to accommodate your staff. If people bicycle to work or take public transportation, you will need to take their needs for a secure place to store their bikes and proximity of bus or train stations into account.
Types of Office Space
There are many different types of office space and which one you choose will depend upon what type of environment is best suited to your team and your type of business.
Co-working Office Space
Co-working spaces hit the office space market in the early 2000s as tech entrepreneurs who were used to coding in isolation were finding the need to come together with like-minded people to work and collaborate in a casual environment. Since then, the concept has expanded to all kinds of people engaged in remote work — like freelancers and telecommuters — and to small startups looking for alternatives to high rents and lease commitments.
Because they are leased on a month-to-month basis — and sometimes even daily or hourly — co-working office space rent is all-inclusive, so workers don't have to worry about any of the usual expenses of setting up an office. You just show up, grab an available desk or couch, and get to work. The co-working model is ideal for anyone who is looking for a flexible and modern work environment.
Before there were co-working spaces, individuals or small businesses looking for workspace flexibility turned to executive suites. Still popular today, executive suites attract service businesses that need private, well-appointed offices for their staff — like law and accounting firms or small sales team branches.
Executive suites allow firms to keep a professional facade — tenants share a receptionist to take calls and greet clients, as well as conference rooms, printers, copy machines, and mail facilities — while avoiding the hassle of setting up and paying for a pricey professional office of their own.
Traditional Office Space
When people think of renting office space, the traditional type is usually what comes to mind. These conventional spaces usually contain some combination of the following:
- Private offices for management
- A reception area
- Interior office cubicles for staff
- Conference and/or meeting rooms
- A printer and mailroom
- A staff break room
Service-oriented businesses typically occupy these conventional-type offices. Traditional office spaces may also be configured to support medical and dental providers.
Contiguous Office Space
In a contiguous office space setup, several office suites are combined on a single floor of a building and are typically rented to a single tenant. For instance, a business might have several departments, each occupying a different suite on the floor.
Creative Office Space
The creative office space has become a popular alternative to traditional or contiguous setups in the last few years. Designed to spark creativity and encourage employees to openly collaborate, these spaces can be identified by:
- The use of open floor plans containing rows or circular configurations of desks sometimes interspersed with low-walled cubicles
- Casual collaborative spaces, such as living room-like break areas with gaming stations, ping-pong tables, or other vehicles of distraction
- Glass-wall conference rooms
- A modern industrial design that includes open ceilings with exposes — and often festively painted — ductwork and painted concrete or some other kind of artistically presented industrial flooring.
Flex Office Space
With flex office space, manufacturing, warehousing, or even high-tech research operations meet the front office under one roof. Tenants who occupy flex office space need the industrial part of their business and their administrative centers close to each other. Often, the tenant will rent the industrial space and then build out the offices they need.
There are no hard and fast rules regarding the style of office space a particular tenant will create in a flex space situation. You can create a traditional space, a creative space, or even combine office space with a showroom or design center.
Understanding Commercial Lease Terms
Once you have determined the size and type of space that best suits your needs, you will want to think about the kind of office lease you are willing to sign. Commercial lease terms can be complex and it is important to understand the terms.
Think about how long you want to commit to the lease. If you are a startup without a track record, you don't want to be tied to a lease if your business folds or if you sell it. You could also outgrow your initial space in less time than you anticipate. Don't get yourself tied down into a long-term lease if there are too many factors that could make you want or need to move or end the lease sooner than later.
Triple Net Lease
A triple net lease — sometimes just referred to as a net lease — requires you to pay almost all of the expenses connected to the property. While the landlord will be responsible for maintaining the structure of the building — roof, foundation, etc. — you must pay your portion of the property taxes, building insurance, and common area maintenance (CAM) fees.
On rare occasions, the lease may specify "absolute triple net" terms, which means the tenant is responsible for the structural components, too.
Full-Service Gross Lease
With a full-service gross (FSG) lease, the tenant pays the base rent only, leaving the landlord to cover all the other expenses connected to the property. Often, rents will be higher for these types of leases, so do some comparison shopping to make sure you actually are in a better financial place than you would be with a triple net lease.
Modified Gross Lease
A modified gross (MG) lease is sometimes referred to as triple-net light. With an MG lease, the tenant pays their base rent and then some of the operating expenses, which will be delineated in the lease terms.
Additional Lease Terms
The following terms may also come up in your lease. Be sure you understand the rights and responsibilities that come with each term.
- Sublease clause: This will determine whether and under what circumstances you can sublease some or all of the space to a third party.
- Exclusivity clause: An exclusivity clause gives the tenant the right to be the only business of its kind in the building or facility.
- Rent escalation clause: The rent escalation clause sets forth how much of an increase in rent you could be subject to during a specific period of time.
You may also encounter clauses related to the condition of the property when you assume occupancy. All of these clauses can be written using complicated terminology and it is usually a good idea to have an expert — a commercial real estate agent or a real estate lawyer — review your lease.
Skynova Business Software Helps Small Business Owners Manage Operations
Keeping track of current business expenses and understanding how leasing new office space will impact your bottom line — both in terms of increased costs and creating opportunities for increased revenue — is key to making the right choice for your business. Skynova's accounting software and other products specifically designed for small businesses will help you keep track of all of your financial matters so you have all the information you need to make sound business decisions.
Get started with a free Skynova account today.
Notice to the Reader
The content within this article is meant to be used for general information and may not apply to your specific situation. Before entering into any binding agreements — including office space leases — it is advisable to seek legal counsel.