Over my 15 year career in commercial real estate, I’ve learned that small businesses come up against many of the same challenges as they start their search for office space. For first timers in particular, the office search process can be quite overwhelming. Tenants have some false assumptions about how all the pieces go together. It’s not always a simple process but there are certainly solutions today that help make it easier.
Some small business owners could use a mini tutorial about challenges they will face throughout the process and how to handle them. Here are the top three challenges small and medium sized businesses (SMBs) face when searching and leasing for office space, and tips on how to overcome them with today’s tech:
1. Managing their own expectations
Small business owners that haven’t searched for office spaces before often have an unrealistic idea of how the whole process works. From how much properties cost to how much time it takes to lease a space to coordinating the many people involved — small business owners could use an adjustment in their expectations.
I’ve been surprised to see that so many small business owners assume that looking for an office is similar to hunting for an apartment. They think you can sign a lease just a few days after seeing a few properties. When they receive a 60 page lease document, they look puzzled. While there are ways to speed up the process, SMBs should know upfront that searching for an office space does not mirror the process of finding a rental apartment. There are additional variables that prolong the process so that it usually takes a minimum of 4-6 weeks from start to finish.
Unsurprisingly, small business owners don’t have a good understanding of what it costs to lease office space. Unlike an apartment owner that simply quotes a monthly rent plus utilities, commercial owners quote rent using confusing jargon such as triple net and modified gross. Tack on additional costs such as real estate taxes and operating expenses, and it’s understandable why small business owners struggle to trust the leasing process.
Thankfully we can leverage tech tools to help manage the unrealistic expectations when starting the office search process. There are apps that can track the progress of various tasks so the workflow can be transparent, avoiding assumptions and misinterpretations.
TIP: One of the most powerful tools for this type of workflow tracking is Tenant Tracker, they can help keep all the stakeholders in a deal informed through the entire process. At the very least a client can specify his or her desire to be notified about any major developments so a broker will realize the need for transparency.
2. Thinking that the perfect space exists
SMBs need to be prepared to make a compromise in order to get “the best existing place for their needs” instead of “the perfect place.” Simply put, the perfect space just doesn’t exist. Something will have to give, and they can still be very happy. Also, businesses have to move fast when making a decision about a space, especially in a hot market when several companies all love and want the same spot. If you hesitate, you’ll lose it, because more than likely, several others want it too. It’s not worth it to wait for the “perfect space.” You’ll end up waiting for something that doesn’t exist and then someone else will snag your next best choice.
Today there are platforms such as Truss that can quickly provide useful information such as average number of days spaces are on the market. In Chicago for example, we know that River North spaces with high-end and cool finishes stay on the market less than a week on average. With this information on hand, we can give tenants the confidence to make the right decision. Truss also informs tenants how many other businesses are looking at the space, which can also nudge them to make a decision. Thanks to this data collection, tenants feel a little pressure to let go of their dreamed-up perfect space and quickly move on to the next best option, which usually is the best option.
3. Trusting public market reports at face value
Sometimes the press plasters big vacancy rates across headlines, but office seekers need to know that those claims are not blanket statements. It doesn’t apply to every area of a given city.
For example, you may see a headline stating that the market Vacancy Rate is up 2% since last year. What is not discussed is that there may be a submarket within the market that saw a 5% drop in the Vacancy Rate over that same time period. So while the unassuming SMB sees that headline and thinks they can get a great deal, depending on the submarket they want to target, the great deal may not exist.
SMBs need to remember there are micro markets within markets that often have a different situation, and it’s those submarkets that tenants need to understand. News headlines may not reflect what applies uniquely to them, as office seekers.
Again, tech systems today exist to help. Specifically, there are systems out there that slice and dice different sub market data to show real time average costs and vacancy rates. Typically, it’s the broker’s job to know how different sub markets are doing and they used to spend several days going through data and putting charts together for clients to see. Tech now does this automatically. Both Zillow and Redfin do a good job with slicing and dicing market data to keep the customer informed. When office seekers see real data in an app, it is easier for them to understand and they don’t question the reality of data either. The impact of tech-driven data can sometimes be greater than information from a human broker trying to close a deal. Knowing details about submarkets at the beginning of a search will also help streamline the office search process.
TIP: Commercial real estate data does not have as many free options for researching a market like the residential side. Bigger brokerages like Cushman & Wakefield have macro and micro level forecasts and reports. Another resource is crowdsourced property data platform CompStak, while their full services are limited to industry professionals they produce regular market reports as well.
The office search process is an unfamiliar one to most tenants. Searching for space is not something that people do several times a year or years, so it’s only natural that they have some false assumptions about costs, properties and the industry as a whole. I hope they can keep these challenges and tech solutions in mind the next time they start their hunt for a new office.