#1 Startup Tip for Negotiating Office Space

Over the past 10 years I’ve done one direct lease and four subleases for office space. Needless to say we’ve moved every couple years as we would inevitably grow out of our space. It wasn’t until the past two subleases that I came across the number one tip I want all entrepreneurs to know when negotiating a lease/sublease: ask to pay for only the space you need now and grow into the space financially by paying for more over the life of the lease.

As a startup, when looking for office space, I recommend getting the amount of space you expect to need by the last 6-12 months of the lease. So, if you’re doing a three year lease and you have five employees now, but expect to have 20 employees by the end, it becomes tricky to find the right space. Here’s an example of growing into space:

  • You find 5,000 square feet office but only need 1,500 sq ft at $18/yr/ft for a three year term but can’t afford that much space now and don’t need that much
  • Offer to pay for 1,500 sq ft for the first six months, followed by paying for 2,500 the next six months, and add another 1,000 sq ft to the bill every six months thereafter until you’re paying for the entire 5,000 sq ft
  • The $18/yr/ft would stay constant or increase 3% per year such that by the end of the lease you’re paying the standard asking price

Naturally, your effective rate per square foot over the life of the lease would be significantly less than $18 sq ft but you get the benefit of the space you’re going to need at a price that meets your respective company size. Plus, landlords like to develop relationships with growing companies and people like to see startups succeed as it helps the economy.

5 thoughts on “#1 Startup Tip for Negotiating Office Space

  1. Experience sharing for another data point. We did a direct lease for 42 months recently for 4200 sq ft in Durham. We hired a real estate agent to help us negotiate for a space we already liked. Our price came down from 22.50 to 18.50 / sq ft / yr, but the landlord did not relent on allowing us to pay for a portion of space now and expanding the paid space over time. That would have been nice to have, but the landlord would have had to modify air conditioning and possibly plumbing to restrict us from part of the space, and they refused to just give us the larger space without paying for it. Is 18 the going rate in Atl?

    • Thanks Shashi for the interesting data point. I should have clarified that this is a good technique for buildings with significant vacancy as landlords will be more agressive. Class A space in Buckhead is typically $25 – $35 / sq ft / yr but can be had for closer to $20 / ft in more agressive buildings.

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