Five flexible lease options for tech companies besides co-working

Five flexible lease options for tech companies besides co-working

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Building an engaging environment in the technology sector is becoming increasingly important to attracting and retaining employees. Tech giants are pouring resources into state-of-the-art spaces but not all small to mid-stage companies are able to do the same. Construction costs continue to grow and, therefore, it costs 30% more today to build an engaging workplace than it did 12 years ago.

So what are your options for creating an attractive work environment that also provides flexibility for your growth? Co-working space is becoming a more popular option, but that’s not the only solution. Here are five options for securing flexible office space on a budget.

  1. Sublease:Finding plug-and-play subleases (where furniture and equipment is already in place) will help limit your capital expenditure on furniture. You most likely won’t have much, if any, ability to make significant changes to completely transform the space to match your company culture. However, there may be some excellent, modern subleases spaces available in the market that will do for the time being. As other tech companies in Phoenix grow, they often leave great space behind that can be found in many of the major tech hubs (Tempe, Scottsdale and Downtown).

 

  1. Must-take space:This commitment allows you to reserve office space you may not need now but know you will need in the future. The lease is structured in a way that you pay for the additional space in increments depending on your phased takedown. The negotiated takedown schedule depends on market conditions and how much a landlord desires your tenancy. Because you’ve committed to taking down the space at some point, no one else will be able to lease it.

 

  1. Fixed expansion option: With a fixed expansion option, your landlord agrees not to lease open office space (usually adjacent to your suite) for a certain period of time. During this time, the space is off the market, providing you an option to expand into it based on pre-negotiated terms set when you sign your original lease. This type of option is hard to come by as landlords aren’t always favorable to sitting on space, but from a flexibility and protection perspective, this is as good as it gets.

 

  1. Right of first refusal (ROFR): A ROFR is another option to expand into additional space in the building. Once another tenant has agreed to lease terms on the space with a ROFR, you will be notified by the landlord and have a short window to claim the space and stop the lease. While this offers flexibility, it is important to note that, in order to take the space, you will need to agree to the terms already negotiated by the other tenant and the landlord.

 

  1. Right of first offer (ROFO): A ROFO is similar to a ROFR but instead of the landlord approaching you when another tenant is interested in empty space, the landlord will approach you when another tenant vacates their space, providing you with an option to expand into it. The landlord will present terms they are willing to lease you the space for. Opportunity to negotiate those terms are dependent on your relationship with the landlord as they are not obligated to negotiate.

When considering these options, is important to take a hard look at your growth projections. The certainty of meeting your projections can determine the option best for you. It’s also important to remember that sublease and must-take space are firm commitments, whereas fixed expansion, ROFR and ROFO are options, not obligations.

The availability of these options is determined by the dynamics in the market at a given time. A savvy negotiator will be your best first step to exploring these options so you can preserve flexibility, maintain your budget and minimize risk. Otherwise, you’re operating at a disadvantage.

Matthew Coxhead

Author: Matthew Coxhead

Matthew Coxhead is an Executive Vice President at the JLL Phoenix office, where he specializes in representing tenants in office leasing transactions. Through his relationships with corporations both locally and nationally, he guides his clients through their most important real estate decisions.

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