Of all the offices you’ve ever worked in or visited, which one was your favorite? Why was it your favorite? Don’t think about the people — instead, analyze the place itself. Was it the location? The layout? The light? The decor? Some ineffable “vibe” that it managed to capture?
Whatever office you’re picturing, most likely, its particular awesomeness was not the product of luck. Awesome office spaces are manifestations of mountains of forethought, strategy, planning, and execution. Awesome office spaces take work and focus to find and then cultivate.
Every startup dreams of having its own awesome office space. Indeed, in the collaborative, creative world of startups, physical office space is still an integral part of building a strong business. A typical startup can take years to scale, however, so it can be a challenge to find the right office spaces to see you through your journey. In addition, in a highly attractive and fast-growing tech market like Los Angeles — with more than 72,000 tech jobs as of 2016 and only 14% vacancy in Q2 2017 — it can feel like an even more overwhelming challenge.
So how do you begin? What are the DOs, DON’Ts, and best practices when it comes to leasing the right office space for your startup? To help demystify the process, Distillery sat down with CBRE Corporate Real Estate Consultant Shay Bolton. Says Bolton, for most startups, “Money is scarce, and you need to be able to allocate it properly. You need to be able to understand the risks and rewards of your real estate decisions.” With that in mind, read on for Bolton’s wise guidance on making the right real estate decisions for your startup.
Be cautious and educated about leasing decisions.
As Bolton relates, “Scaling your growth alongside your real estate during the early stages is such a difficult task to manage and advise on,” says Bolton. While the startup’s CEO may have a plan and a vision for growth, nobody can predict the future, and plans don’t always play out the way we expect. Accordingly, don’t make decisions about office space without a great deal of forethought. Before leasing, gather intel, have conversations with people in the real estate business, and weigh your options. Relates Bolton, “I’m always happy to hop on the phone with people to share my knowledge of business and different markets, whether they work with me or not. It can be like a foreign language.”
Closely consider your employees’ needs.
Generally speaking, successful startups are strongly focused on attracting and retaining top talent. A well-located office space with access to amenities can be a significant deciding factor for prospective employees, as well as a key factor in retaining existing employees. As one strategy to help companies settle on a location, Bolton creates scattergrams representing employees’ home addresses. From there, they circle a target area with an appropriate radius that works for as many people as possible.
Sign a lease that doesn’t allow you to sublet.
If you can’t sublet, you have very little flexibility if the space becomes too small or too big for your needs. (More on this later.)
Fail to plan for the future.
From a lack of planning and foresight, some startups sign long-term leases that simply won’t be a long-term fit. No matter how much you love the space, signing too long of a lease isn’t a good risk to take.
Overlook good options that may not fit your initial vision.
Don’t begin with too limited a view of where your office “should” be located. For example, if you’re dead set on a beachside location, you may miss out on amazing, fit-to-purpose options in places like El Segundo, Culver City, or downtown LA. After all, as Bolton explains, part of what makes LA an attractive home base for startups is the incredible range of options. “Whether it’s a refurbished warehouse in a formerly rundown neighborhood, a converted beach bungalow, or a big, lavish campus, that’s part of what makes LA fun for these tech companies,” says Bolton.
What are best practices for initiating the process of finding space to lease?
Start at least one to two years before you need to move.
Each startup’s timing will vary based on what market they want to be in, what’s available, and the size, features, and amenities they need. That being said, according to Bolton, a good general rule is to initiate the process at least 12 to 24 months before you need to make a move.
Align early with a real estate broker who can advise you.
Whatever your plans or timeline, it’s ideal to talk to a broker as early as possible. After all, leasing agents like CBRE help startups find solutions for both short- and long-term needs. “If a company comes to us and says, hey, we’re in a co-working space, but we need to be out in 60 days and we can’t afford the super-high prices at this co-working company, we may help them find a band-aid in the form of a different co-working space or a sublet situation,” explains Bolton. They then begin working with the startup to find a longer-term solution to fit the company’s projected growth and big-picture goals. Anyway, there’s no financial cost to you for looping in a broker: real estate brokers are paid by landlords, not tenants.
Scale real estate alongside capital.
As Bolton explains, instead of the salesman’s dictum of “Always be closing,” the mantra in the startup world is “Always be sourcing capital.” Retaining capital at the right time can be crucial in helping a startup to scale effectively. Thus, finding the right short-term office space solution may be instrumental in helping a startup to retain business investment capital that can instead be used for other purposes (e.g., marketing expenses, employee salaries).
What are the most important characteristics to look for in an office space?
While the needs of each business will vary, there are certain characteristics common to any good startup leasing situation:
A good landlord who is supportive of startups.
According to Bolton, this should be the #1 priority for any tech startup. Specifically, she recommends making sure the building’s owner is a “flexible, reputable landlord that understands the value of startups, and is onboard with the idea behind your business.” As we all know, things don’t always go as planned. Accordingly, as Bolton explains, “It’s valuable to have a landlord that understands startups’ need for flexibility,” and creates a leasing environment that provides it. For example, if you need help subleasing a space that has become too small, they may be able to direct you to another tenant who may be interested in taking over your space. They may also be able to find a larger space for you elsewhere in the building, or let you know of possibilities for expansion of your current space.
Location, location, location.
“Location is everything,” says Bolton. For LA tech and media companies, there are certain “hot” neighborhoods in which both veteran players and startups are concentrating. These areas include the South Bay, Downtown LA, Hollywood, and Glendale, all of which are booming with tech and media real estate activity. In addition, new “hot” neighborhoods continue to emerge. For example, with projects like THE MIX at Harman Campus, the San Fernando Valley is becoming a burgeoning hub for creative users. Having an office in one of these areas gives you credibility. It also gives you proximity to — and the opportunity to rub elbows with — other tech and media workers. Beyond choosing the right neighborhood, however, there are countless factors that go into determining whether a given location is right for your business and company culture. These factors include (but are not limited to):
Parking, parking, parking.
Is there sufficient parking for your employees and clients? Especially in the LA market, parking can be a challenging proposition. Bolton always makes certain to help clients understand a location’s parking conditions. She relates, “I once spent six hours doing a Beverly Hills parking survey for a client. It made a big difference in my client’s move.”
Access to public transportation.
Can your employees and clients take buses, light rail, or the subway to your office? Making sure your employees and clients have ready access to public transportation can be either an amenity or a necessity. In locations where parking comes at a premium and daily commutes happen amidst a sea of traffic, it can make a massive difference in helping you attract and retain top talent. It can also provide your clients with greater flexibility in how they travel to your office, so that they don’t necessarily have to sit in frustrating traffic on the 405 prior to your important meeting.
Access to freeways.
Is your location proximal to the highways and freeways that will provide your car-driving employees with as ideal a commute as possible? Again, especially in areas like LA, car-commuting employees ideally want to be able to jump on the 10 or the 405 without having to drive over miles of surface streets to do so.
Access to amenities.
Will your employees have ready access to restaurants where they can buy lunch, stores where they can do their midday shopping, and bars where they can gather for after-work happy hours? Access to amenities (e.g., a mixed-use project or pedestrian mall) can have a huge impact on employee satisfaction. It can also make or break a neighborhood. Explains Bolton, “Look at Glendale: the Americana really changed the DNA of that market. The Runway in Playa Vista and the Third Street Promenade in Santa Monica did the same.”
What steps should I take to be ready to sign a lease?
Make sure you are working with a good broker and a good real estate attorney.
Leases are legally binding documents. Before you sign, it’s crucial that you’re cognizant of the potential risks involved and working with a team able to help you mitigate those risks as you move forward. Your broker can help you understand market conditions, assess the pros and cons of a given space, and develop a strategic plan to accommodate your business’ future growth. Your attorney can help you recommend favorable lease provisions, understand the fine print, and negotiate any changes needed to lease language.
Look at as many spaces as possible that fit your criteria.
Before a client makes a decision about which space to lease, Bolton does her best to ensure that they’ve exhausted all possibilities that may fit the client’s needs. She wants to make sure they do the legwork to find the best situation possible.
What leasing-related advice do you have for startups that plan on significant future growth?
Embed the right lease language and provisions.
Maybe you don’t know how much or how quickly your business will grow. Maybe you’re contemplating selling, but you have no clear idea about the timeline of that sale. Either way, it’s crucial to have lease provisions that give you as much flexibility as possible. Bolton mentions several example provisions, including having a right of first refusal on any space that’s contiguous with yours, or having termination rights that allow you the option of negotiating early termination of your lease in exchange for certain agreed-upon obligations. In addition, Bolton insists, “Every company should have the ability to sublease.”
What qualities should I look for in a real estate broker?
Bolton recommends seeking out a broker who demonstrates:
A strong understanding of your business and industry.
Market intelligence is crucial to helping you make the right choices for your business. Bolton herself has deep experience working with tech startups in the LA area, and she’s passionate about using that market and industry knowledge to benefit her clients. In addition, she brings her clients the insight of CBRE’s global Tech and Media practice group, which analyzes tech and startup activity in every international market worldwide.
A long-term commitment to helping your business thrive.
Your agent acts on your behalf, so you want to be able to trust that they’re committed to your long-term best interests. “Real estate is among a company’s top three expenses. So we focus on what will really benefit these companies and make an impact,” says Bolton. “We treat their business and their money as our own. It’s not just about doing a deal and being done. I stick around. I keep that relationship strong.” Bolton is proud of her ability to connect clients with the right resources from within CBRE’s gargantuan network — a network that includes not only CBRE advisors, but also other service organizations and clients. For example, they’ve helped clients make strategic connections with VC firms or other clients.
The ability to consult on the big picture of your business and real estate needs.
Can your broker talk to you about more than just real estate? One of the reasons Bolton loves working for CBRE is the big-picture support she’s able to garner for her clients. For example, since CBRE has a workplace strategy group, there’s a strong workplace strategy component that flows into their real estate advice.
What’s the single most important piece of advice you can give to a startup preparing to lease their first office?
Align yourself with people who understand you.
“The ‘hustle’ is such a big part of the startup world. As a startup, you want to align yourself with like-minded individuals who have like-minded perspectives,” says Bolton. Since Bolton has invested much of her professional career in working with startups, she’s come to understand how they think and how they work. “I know what went into the ‘hustle’ of where they are now.” If you work with someone who doesn’t understand who you are and what you’re trying to do, you’re likely to end up at cross-purposes.
If you have any additional questions for Shay about the office market in Los Angeles, you can email her at email@example.com.
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