Sitting in his new office overlooking Austin's bustling 6th Street, Spacial Audio Solutions CEO Bryan Payne can't help but see a silver lining to the topsy-turvy economy: cheap rent. Last year, Payne hunted for office space in this same area and came up empty-handed.
It wasn't enough for Payne to be in Austin. He wanted to be on 6th Street, Austin's main thoroughfare for clubs, restaurants, and live music. "Our business is all about music, so it made sense to be in the thick of it," says Payne. His company, which sells streaming and advertising software for Internet radio, has gone from 7 employees to 20 in the past year. Revenue, at $1.7 million in 2007, is on track to double in 2008. Payne wanted space that was raw, but not too raw to have clients in, and he needed room for up to nine people. He could spend $4,000 a month, but at that price all he found were old bars and restaurants that needed to be converted.
Payne took his time. He moved from Lubbock, Tex., to Austin, working out of a home office while he continued to search. Eventually, his patience was rewarded. In April, Spacial moved into a 1,680-square-foot office in historic Hannig Row renting for $2,200 a month. "They even gave us three weeks of free rent," says Payne.
While commercial real estate hasn't been hit nearly as hard as residential, the market is still probably weaker than it was the last time you shopped for space. Nationally, the vacancy rate for all office space was about 11.7% in the second quarter, according to CoStar Group, a commercial real estate reporting agency. That's up slightly from 11.1% in the second quarter of last year, but a lot lower than in the mid-1980s, when vacancy rates reached 20%. Nationally, office rents are holding steady at about $25 a square foot for full-service rent, which includes utilities, taxes, insurance, and cleaning. In some markets, rents are even going up. Still, higher vacancy rates are an early sign that "the market is moving from a landlords' market to a tenants' market," says Rick Davidson, president of Coldwell Banker Commercial. If you're a business owner looking for space, thinking of moving, or renegotiating your terms, it's time to start flexing some muscle.
For many entrepreneurs, real estate is a huge cost, second only to payroll. So moving is not a decision to be taken lightly. Start by thinking about the relationship between your business and the roof over your head. How much space do you need, and what kind of space should it be? Then there's location. In retail, it's everything; for a high-tech startup it may not matter. What features are key? Control of the thermostat might seem like an afterthought until you work a long weekend in August. And you'll need a good broker—one who knows the market, has good relationships with landlords, and understands your business. When it's time to negotiate, you'll want to pick your battles; landlords are willing to make some concessions, but not all.
Most important, take your time. "In this market you shouldn't feel pressured to make any decisions," says John Gates, president of brokerage for the Americas at real estate company Jones Lang LaSalle. "If anything, the market will continue to advance in your favor."
MAKE YOUR LISTSNo space, at any price, is likely to be perfect. "Make sure you have a 'gotta have' list and a 'like to have' list," says Michael Harrity, an adjunct professor at Babson College and managing director of Boston-based Matrix Real Estate Advisors. Refer to that list as you're looking, and don't be too quick to settle for space that doesn't work as is. Air conditioning, heat, parking, storage, natural light, and noise can each mean the difference between a great space and a big fat compromise. And while you can always change a space to make it work, that's going to cost you. Even if the landlord is willing to shell out some cash for tenant improvements, says Coldwell's Davidson, he'll rarely kick in enough to cover all of the costs of outfitting a new place.
Location—whether on the "gotta have" or the "nice to have" list—is likely a top priority. Anna Gervait, CEO of Agile Communications Group, recently decided that a short commute trumped a swanky address. In June, she moved her six-employee tech startup from a 1,500-square-foot executive suite in downtown Tampa to a prewar building just south of there. When she moved into the executive suite in 2006, she says, it was all she could find. The building, with its enormous glass atrium and prestigious address, was impressive. But at $5,400 a month, rent was a big drain, and clients rarely saw the place. What's more, "We had no control of the air conditioning," says Gervait. Hardly ideal for a startup whose employees often work odd hours supporting customers who use its software to send mass text messages to clients.
This spring, Gervait and COO Rick Bowen set out to look for new space. They had three main criteria: They wanted cheaper rent, shorter commutes, and control of the thermostat. "One day when I was pulling out of my home garage I saw a tiny sign saying office space for rent," says Gervait. She saw the building with her broker, "and we immediately knew it was almost perfect." They got more space, cut their rent by more than half, and now Gervait walks to work.
No comments:
Post a Comment