When to lease your own office space

When should a startup decide to begin leasing its own space? We asked Philip Brady and Anna Shaffer, two tenant representatives at Savills Studley, to explain how the real estate market in D.C. has evolved in recent years into a more advantageous environment for early-stage tech startups.

1. Some companies don’t need their own office space.

D.C. has grown several coworking spaces in recent years, and there’s a reason why a lot of small tech companies are flocking to those. They “really cater to the startup, to the entrepreneur,” said Shaffer. They “offer some great flexibility with regards to timing, lease terms and shared amenities.”
Sometimes, it’s just not the right time to move. “Management can be very overzealous,” said Brady, “with the idea of getting a cool new office space.” But before entering in a lease agreement, it’s best to be on a stable financial footing, and avoid personal guarantees.
The value of proprietary office space also depends on the startup’s medium-term goals and exit strategy. Some questions growing startups need to ask themselves, before looking for their own space: “Do they want a specific identity and branding? Are they entertaining clients?” said Shaffer.

2. However, if you’re starting to feel too big for your coworking space, now’s a good time to shop around.

The local real estate market has grown more amenable to growing early-stage ventures. The “two largest occupiers of space — law firms and the GSA — are downsizing,” said Brady.
That’s partly a result of new technologies: there is less need today for tangible libraries, and more and more employees chose to telework, he explained. “Someone needs to come in and absorb that space,” said Brady.
“The tech industry is ideally going to be that industry.” The downsizing of lobbying firms and law offices is also contributing to the mini tech boom, as more and more technologists are encouraged to trade sectors.

3. How to get the best deal in the current market.

When the value of office space in more pricey buildings — the ones that usually host law firms — declines, then all market prices are pulled down. That’s partly why real estate concessions — bonuses used by landlords to make a contract more attractive — are peaking. Meanwhile, tenant representative firms like Savills Studley are entering the fray to represent early-stage tech companies seeking in real estate deals.
To exploit these trends and get a good deal, companies should watch out for the fine print in their lease agreements. A good package includes favorable concessions — like free rent and tenant improvement dollars, early termination rights, or the possibility to relocate within the building. Watch out for annual rent escalations, badly administered tenant expenses and being in the boondocks (location, location, location, remember?).