For well-established businesses with a solid, predictable growth plan and enough capital to sustain any mishap or expense, the standard commercial lease can not only offer tax benefits and fixed rental rates, but the autonomy to customize a workspace to fit the exact image you want. In other words, signing a standard lease agreement is a huge step forward in establishing a presence for your business.
It’s not a step that should be taken lightly, however. For many growing companies, a standard office lease may not fit their growth plan or their budget, and may be more of a headache than an accomplishment.
Here are five common problems that you should keep in mind when considering a traditional lease.
Problem #1: Finding the Right Fit
All over the US, vacancy rates are reaching shocking lows, and rental rates are naturally creeping up. Businesses—both large and small—are finding it harder than ever to find a space that can fill their needs without breaking the bank.
Unless a startup or small businesses is looking outside of the major markets (which could result in easier growth), the chances of finding an affordable, high-quality office space is increasingly unlikely. And even if they can find such a space, many small businesses aren’t able to satisfy a host’s financial requirements, unless they have a personal guaranty. For many businesses, the major markets like DC, LA and NYC may present the best business opportunities, but without easy office access, these opportunities can pass them by.
Problem #2: The Frustrating Negotiation Process
Simply put, commercial leases are some of the most complex legal documents a business will have to deal with. While bickering over rental rates, buildout allowances and operating expenses is a nightmare in itself, many leases come with various complex clauses and terms that must be scoured and scrutinized with legal counsel for weeks in order for both parties to know what they’re getting into. After all, don’t you want to know if your repair and maintenance fees are included in your rent or not? Or, if you have reasonable exit options should you choose to leave earlier than expected?
All of these issues can be ignored and become huge, expensive hurdles down the line if the business doesn’t devote considerable effort and money (both of which they may not have) to negotiating the best agreement.
Problem #3: The Waiting Game
Finding an office space and negotiating a lease also takes a considerable amount of time that many businesses just don’t have. Not only does it takes months, if not years, to find a space that works for you, but you’ll also need to spend a considerable amount of time negotiating the lease. With all that time and frustration, many businesses may settle for any space that fits them or overlook countless dangerous clauses in their lease so they can simply get past the whole process and focus on their work. This, of course, can come back to bite them.
Problem #4: A 5 to 10-Year Ball and Chain
Most commercial lease terms last from three to ten years, with some even going as long as twenty years or longer. For companies just starting out and experiencing rapid growth, many of these leases may be too long for them to stick around in one place. These agreements quickly become an albatross around the lease holder’s necks as they pay for too little space where they can’t work effectively, or a huge space that eats up their bottom line. Simply put, the longer the lease, the less flexibility a business will have to adapt and change as they grow, and today’s market is full of companies that explode in popularity overnight (or the opposite). A long-term lease will also prevent a business from cutting costs if market rents drop, forcing them to pay above market rates for their space. This is why many companies, large and small, are growing increasingly hesitant to make the multi-year commitment.
Problem #5: High Costs, From Move-In to Move-Out
If you couldn’t tell already, the leasing experience is an expensive, exhaustive endeavor. In fact, office space is the second highest cost a business will face after payroll. Everything from security deposits, property taxes and legal fees to renovations, common area maintenance fees and moving companies can kill a business just as they were about to find their financial footing.
An Easier Alternative?
For all of these reasons, we’re seeing many companies of all sizes starting to veer away from the standard lease in favor of exploring more flexible office experiences like coworking and shared office spaces. These newer solutions allow companies to quickly and easily set-up shop in every major market for much less cost and hassle than a traditional lease requires. With simple, streamlined systems and structured terms, office guests can invest their time, effort and money into their businesses, and have the flexibility to move to another office or even to a new city without the long-term commitments of the traditional lease. Simply put, the new wave of shared offices options are allowing startups and multinational corporations alike to not only access all the amenities they need at an affordable price, but to work in an environment that fosters their own unique culture.
The modern workplace is changing fast...
Are you keeping up?