According to NPR, new business openings hit an all-time high last year, with 5.4 million business applications filed in 2021. As these startup businesses continue to grow, many will be looking for larger office space.
To help you plan, we’ve put together some essential things to know about how to plan office space for startups.
Why Startups Need Office Space
Although some very big-name businesses (like Amazon, Microsoft, and Google) started in a garage, eventually most startups need office space. While working from home is becoming more commonplace, there are several benefits of having office space. Physical office space:
- Sends a signal that a business is legitimate.
- Demonstrates to clients and employees that owners are taking a business seriously.
- Allows employees to be more productive by not dealing with remote work distractions.
- Makes it easier to build company culture when employees have a place to meet face-to-face.
Options for Startup Office Space
Startup companies often lease flexible office space or coworking space on a short-term lease to help keep expenses low. Here are some of the most common office space options for startups:
Coworking offices are fully furnished and fixtured with flexible lease terms and conditions. They typically offer a professional, high-profile business address, a shared staffed reception area, and state-of-the-art amenities and perks like complimentary beverages and after-hour get-togethers.
Shared office space is office space split with another company to keep overhead low. Usually, office space is shared with a complementary business, such as a commercial real estate brokerage with a title company or an e-commerce business with a graphic design company.
Incubator and accelerator office space is similar to coworking space, but often the rent is free because of funding from economic grant programs or landlord sponsors taking a share of business profits. Incubator office space may be a good option for 1-2 person companies looking to save money while simultaneously networking with other startups in the same space.
Many startups eventually reach the point where they can afford their own space. A traditional office can make it easier for a company to establish its brand and image, attract clients and employees, and avoid interruptions by not sharing office space with other businesses.
How Big is Startup Office Space?
How much startup office space to lease depends on the number of employees expected in the office at any one time. Some average per-square-foot guidelines for the most common type of office space are:
- Open workstations 85 SF/person
- Executive office space 120 SF/person
- Quiet rooms 85 SF/person
- Conference rooms 30 SF/person
- Common areas 90 SF/person
How to Plan Office Space for Startups
Here are some of the main factors to consider when shopping around for startup office space:
As a rule of thumb, a startup office should have at least 100 square feet for each employee who will be in the office simultaneously. For example, if a company has ten employees, but five work remotely a few days a week, a startup may need around 500 square feet of office space. In addition, be sure to add extra space for a reception area, breakroom, and conference room.
One of the advantages of coworking space is that many offices come with furniture, fixtures, and decor. Startup businesses sharing or leasing their own office space should consider build-out expenses such as erecting walls and installing flooring, desks and workstations, as well as interior decor projects like painting and window coverings.
The neighborhood a startup office is located in can have a significant impact on the business’s long-term success. When choosing a location for a startup office, be sure to consider neighborhood amenities such as parking, security, dining options, and nearby retail.
Most startup companies lease office space rather than own to keep their options open. A successful startup with ten employees today could quickly need two or three times the room in just a couple of years. It helps to think about the best-case and worst-case future business scenarios, then seek startup office space with the flexibility to expand or sublet.
Overhead costs for office space include heating and cooling, electrical and water, telephone and internet, cleaning and maintenance, and business insurance. A landlord may also pass building operating costs to a tenant, including property taxes and building insurance, depending on the type of commercial office lease.
Commercial Office Lease Types and Terms
Although one can always negotiate specific terms and conditions with a landlord, there are three main types of commercial office lease structures:
- Gross lease: Tenant pays the same amount of rent every month, and rent includes all extra services such as utilities, maintenance, taxes, and building insurance.
- Modified gross lease: The monthly rent with a modified gross lease includes some, but not all, occupancy expenses. For example, a tenant may pay for utilities in addition to a fixed monthly rental rate or be required to pay for building operating expenses exceeding a specific cost per square foot.
- Net lease: Office leases can be single net, double net, or triple net, with each net representing an additional cost to a tenant. A NNN lease may offer a lower monthly base rent, but landlord expenses such as maintenance, property taxes, and building insurance pass proportionately through to each tenant based on the percentage of space occupied in the office building.
How to Find Office Space for a Startup
After determining how much space a startup needs, it’s time to start looking for an office. Online commercial real estate platforms like Crexi make it easy to search for startup office spaces.
Once you’ve narrowed down some options, it’s a good idea to hire a commercial office broker who specializes in representing tenants. In most cases, a broker receives a leasing commission from a landlord for finding a great tenant, which means there’s no out-of-pocket cost to a tenant.
Ben Mizes is the Co-Founder and CEO at Clever Real Estate, the nation’s leading real estate education platform for home buyers, sellers, and investors.