Coworking Space vs Traditional Commercial Leases: Finding the Best Fit for Your Needs - SVN Commercial Advisory Group Commercial Real Estate Services Sarasota & Manatee Counties

When you’re a small business owner, you look for every possible advantage. There are no shortcuts to success, but with the dawn of shared or coworking spaces in larger cities where commercial real estate comes at a premium, it makes sense to consider your options – until you outgrow them.

Finding traditional office space isn’t a cakewalk and costs of upkeep, overhead, and utilities can shrink a small business’ already tight budget. But coworking spaces have their drawbacks, too. Reduced privacy, limited access to conference and meeting rooms, and the fact that you’re sharing with others outside of your organization may result in a credibility hit.

If you’re trying to choose between a coworking space and a traditional office lease, you’ve come to the right place. Each solution comes with pros and cons that should be closely investigated before moving forward on a new place to set up shop.

What’s a Coworking Space?

Coworking spaces – or shared offices – are versatile, affordable options for small and growing businesses, freelancers, or sole proprietors who need a more professional environment in which to conduct their business.

Popularized in the U.S. by WeWork, these forms of commercial real estate operate in generally the same way: a member or guest may purchase a daily, weekly, or monthly pass for access to a desk, private office, or quad, removing the need for a traditional commercial real estate lease and the upkeep that comes with it.

According to Statista, there are more than 15,000 coworking spacesaround the world and WeWork is now the largest occupant of commercial real estate in London, second only to the government.

Coworking spaces tend to trendy, well-designed, and work-friendly. Many provide complimentary coffee bars to their members, bookable conference and meeting rooms, and private areas for distraction-free phone calls.

What’s a Traditional Commercial Lease?

The only option, outside of working from home, until only about a decade ago, a traditional commercial lease is pretty much exactly how it sounds: a business owner signs a lease with a real estate owner or landlord to occupy a commercial space over a given period of time.

Priced per square foot and complex in the agreement types, most companies seeking commercial real estate leases lean on a professional tenant broker to leverage their expertise and handle the heavy lifting that comes with lease negotiations.

Because of the value of these lease agreements, landlords may vet several different offers before making a decision on a tenant. Credit, business history, projected cash flow, and a business plan often come into play – let alone any financing you may need to raise in order to close a deal.

The Benefits and Drawbacks of Utilizing Coworking Spaces

Benefits:

Affordable and Flexible for the Right Tenant – Coworking spaces and shared offices carry many benefits over signing a traditional lease agreement – especially for small businesses and freelancers in need of a short-term solution or a smaller space. There’s a predictable monthly cost, without the long-term commitment of a traditional lease, for those needing a consistent work environment as well as daily and even hourly rates for freelancers with alternating schedules.

They’re Collaborative When Needed, Private When Necessary – Anyone who’s worked from home knows there’s energy missing that comes when working from an office. Coworking spaces provide that, offering great networking opportunities with other like-minded, enterprising individuals or small groups. Especially in the creative field, where specializations may afford greater reward, it’s easy to run into a talented designer, writer, or engineer that could offer collaboration on a larger project down the road. On the other hand, most coworking spaces offer private quads, desks, and meeting rooms when you need a break from the hustle and bustle.

Versatile and Well-Equipped – Services like printers, coffee stations, fax machines, and conference rooms are fairly standard throughout the coworking industry, making it easy to accomplish your tasks without a trip down the street or across town. Some coworking spaces even have business or technical support staff, offering help if and when you need it.

Drawbacks:

Noise and Distractions – Depending on the popularity of the coworking space and how many people have arrived for the day, it may not be the best environment for deep concentration or those who have trouble focusing on their work throughout the day.

Costs Over Time – Depending on the status of your business, even a coworking space may be too cost-prohibitive. Freelancers just starting out and startups without a steady, reliable source of income may find the draw of a lengthy coffee shop visit a much more viable business option. Many coworking services will also charge additional credits or fees for booking conference rooms or access to other amenities. If you’re not careful, these costs can quickly add up. For those solely looking to save money, you should compare your expected out-of-pocket costs in a coworking space over a traditional office space as factors such as term and usage of amenities can play a huge role in determining the overall costs.

Technical Limitations – At coworking spaces, you’re pretty much restricted to the equipment you bring with you. While some do offer workstations for a fee, you’ll need to bring your own computer with you. And depending on the market, the age of the building, and the number of people accessing the space’s internet connection, it may not be as reliable as your home access or that of a private office.

The Benefits and Drawbacks of Entering into a Traditional Commercial Lease

Benefits:

Control, Privacy, and Access – With your own private office, you call the shots. You’ll have constant access to the facility, privacy when you need it, and collaboration when warranted. You make the schedule and you’re the boss. It’s as simple as that.

Greater Impression for Client Meetings – Meeting with clients in a shared or coworking space is becoming more frequent, but offering your customers, partners, and clients a private, professional space with your company’s name on the door provides a greater degree of viability and confidence that you’ll be there the next day.

Room for Growth – Even if you sign a small space at the outset, it’s likely that you’ll also have some room to grow and add employees in the future. At that point, your cost-per-capita based on square footage will decrease, making it a more financially sound investment as your company continues to build and prosper.

Drawbacks:

Overhead Costs – Aside from the upfront costs, typically first and last month’s rent and a security deposit, you’ll be paying by the square foot for any commercial real estate lease you secure – whether you need it or not. And depending on the lease agreement you sign, you may be obligated to pay a portion of your utility costs, which will rise as your company expands.

Limitations on Growth – Depending on the space, and your rate of growth, your company may be limited by the amount of space available. Putting people in conference rooms is a sign of greater things to come, but the morale hit may impact your business. Unless your landlord has plenty of space to expand and grow your company, you may be squeezed in more ways than one.

Locked in an Agreement – For small businesses, the idea of signing a long-term commercial real estate lease can be daunting. Economic factors, business risks, and unforeseen downturns can leave a small business owner reeling. While many lease agreements can contain stipulations for breaking your lease, it’s more likely that you’ll have to settle with the landlord in order to avoid further penalty should things go south.

No matter what type of office space you choose, it’s important to weigh the benefits and drawbacks carefully before moving forward. Ultimately, what’s best for your company should outweigh any concerns. If you’re just starting out or working with a small team, it may be a good idea to consider a coworking space until your cash flow is steady and your structure sound. On the other hand, if you’ve demonstrated success with your strategy and services, building a business case for a more permanent, private solution in a traditional commercial lease is a worthy option.

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