Many entrepreneurs think the initial step in getting their first office is to call a Commercial Real Estate Broker and have them begin the search. After all, the lease commission paid to the agent is covered 100% by the landlord, so why not take advantage of the services of a real estate professional, right? Yes, that’s true; the tenant will not pay any of the commission on the deal, but will invariably pay in other ways.
What Are The Negatives of Using A Broker?
First, the broker’s commission is determined by the length of the lease and the amount of rent the tenant is obligated to pay. Undoubtedly, the rent will be at market rate, which seems reasonable, but where the broker really makes his dough is on the length of the term! It’s in his best interest to have the tenant sign a multi year contract; collect a healthy commission, and move on to the next deal.
The problem with this is that the tenant is locked in to a long term contract. If for some reason, the business goes through tough times or ends up failing altogether, the business owner, who most likely signed a personal guarantee on the lease, is on the hook for thousands if not tens of thousands of dollars!
Even on the positive side, if business is booming and the tenant must hire more employees to expand his business, he may be locked into office space that is too small and makes expansion very difficult, if not impossible.
Secondly, the real estate broker will probably show his client traditional office space! Specifically, space that is non-serviced, raw, or shell space, because this is the type of space that typically requires a long term lease. Yes, it will have walls, lighting and carpet, and in most cases will be marketed as “full-service” space, but don’t get fooled into thinking that “full-service” means it includes everything! Full-service is a term commonly used in commercial real estate to describe space that includes basic utilities such as electricity & water, common area maintenance, and property taxes.
A new tenant in traditional office space must provide additional tenant improvements to the space (which may be factored into the monthly rate and amortized over the length of the lease), office and conference room furnishings, decorations and artwork, telephone service, telephone & voicemail systems, internet infrastructure, kitchen or break room facilities & supplies, and a copier, printer and fax machine – all of which add thousand of dollars to the initial “investment” in office space and/or the monthly cost of doing business!
What is “WaaS” or Workplace-as-a-Service?
There are many names for it – Offices on Demand, Executive Suites, Instant Offices, Shared Office Space, Short-Term Ready-to-Use, Hosted Space, Outsourced Officing; and the newest wave of serviced office space – WAAS: Workplace-as-a-Service!
Just like SAAS (Software-as-a-Service) has revolutionized how businesses purchase and use software, WAAS is an emerging trend currently changing the way corporations, big and small, make office space decisions.
Gone are the days of long leases, expensive tenant improvements and massive capital investments in office space! WAAS provides a “sign-a-lease-today, move-in-tomorrow” approach where everything needed to run one’s office is provided by the business center:
- Furnished private offices
- Prestigious boardrooms and training room facilities
- Networked color printer/copier/scanner
- Managed T-1 or DS-3 internet infrastructure
- Hosted VoIP telephony
- Business lounge with casual “coffee shop” environment and beverage service
- Professionally appointed reception area staffed with knowledgeable “employees”
- Best of all, a typical lease in a WAAS environment is one year, six month, or even month-to-month!
How Do You Find It? – Google!
Next time you’re in the market for office space – skip the broker, and empower yourself … Google it! A local search on Google for “Office Space in [city name]” will display a host of choices for “smart” space that will give your business the best chance of success. (Make sure to go to direct providers and not listing sites because – like with traditional brokers – their commission will be factored into the price you pay.) As you speak with people who offer office space, make sure they can offer you a solution that has:
- A short term lease (low or no contract risk)
- Zero capital investment (no barrier to entry)
- Everything needed to run an office for one monthly rate (manageable cash flow)
- An all inclusive quote that includes any setup fees or charges
Managing Partner, Silicon Valley & Marketing
Keith has over 15 years experience as President and co-owner of American Executive Center prior to joining PBC (rebranded as Pacific Workplaces), and is a highly regarded figure in the OBC industry. He holds a B.S. in Finance from Santa Clara University.