Rents are Increasing. What are your Options?
Rising rent doesn’t have to mean the end of your company
Maybe you’ve heard of it happening, maybe it’s happened to you: You get a notice from your landlord that your rent is going up 30% once your current lease expires.
“How can they do that?” you may ask.
“We paid rent on time and have a great relationship with our landlord!” you may lament.
Although your indignancy is well-founded, the unfortunate reality is that this isn’t all that uncommon. Landlords follow a simple business model: raise your rents and make more money.
For many companies, office space is the second biggest line item on their budget after staff salaries. For startups it can be an even bigger share. Is your company prepared for that kind of increase? Probably not. Fortunately, not all is lost. Even when facing a seemingly insurmountable cost increase, there are still options at your disposal, some more palatable than others.
Option of Greatest Resistance
Downsize. Obviously, this isn’t the first choice for any growing company (or static company for that matter), but sometimes there just isn’t enough revenue to keep your operations running while maintaining your current head count. Are there ancillary services you provide that aren’t core to revenue generation? Is there an option to take advantage of cheaper college-level interns or lower-cost recent grads? Companies such as Handshake, which helps pair students with companies looking for younger talent, can be a good place to start. Of course, prior to such a drastic decision, it’s crucial to rule out any alternatives (see below).
Option of Less Resistance
Relocate. When cutting your head count is a non-starter, it might be time to consider some lower-cost alternatives to your current space. This option is oftentimes the best place to start, regardless if it isn’t your final decision, as just the threat of relocation will likely earn you better terms from your current landlord. Relocation comes with its own considerations however:
- Will your new space give you the same recruiting and retention ability as your old space? If you’re in a high-profile building in downtown Boulder – loaded with amenities, close to restaurants, and with easy access to the outdoors – a move deep into Louisville, will probably leave your employees feeling cut-off, and will have an impact on your ability to recruit new talent.
- Or maybe you’re downtown and looking at moving south toward the Tech Center. How many of your employees are already commuting from up the 36-corridor? Will they be willing to drive an extra 45 minutes for the same salary? You could increase their pay, but then why move to a cheaper area in the first place?
- Where is your competition located? Can your employees be lured to a similar job with similar pay closer to home?
- Will your operations take a hit by moving your headquarters to a new location? If you’re managing a manufacturing or distribution center, supply chain logistics and delivery times are of vital importance. How much extra cost will you incur if it takes an extra 30 minutes to deliver your products? How many additional major capital expenditures will be required to get your operations up and running at a new site? Can you afford the time it will take to move?
The most important thing to keep in mind when relocating is that it takes time: time to tour the market and find the right location, time to negotiate the right terms on your lease, time to work with the architect and determine the best layout, time to get permits from the city, time for construction and time to move and get settled into your new space. Think six months is enough? Try two years before your lease expiration.
Option of Least Resistance
Rethink workplace strategy. Rather than laying off employees or moving your operations across town, perhaps it’s time to rethink how you use your current office space. Technology advancements have made coming into the office everyday less of a necessity for most employees. Deals can get done on the road, and culture doesn’t have to sacrifice when remote employees can video conference into daily meetings.
Collecting data on your employees working habits are a critical first step to any restructuring. Do all your employees come to the office every day of the week? Do they need large private offices to conduct their business? Does each employee need their own desk, or can they set up shop at any conceivable workspace? How many conference rooms do you need? How many small huddle rooms? How many phone booths?
With this data in-hand, the process of figuring out how to free up space becomes clearer. Maybe you offer employees the opportunity to work from home on certain days of the week. Maybe you move away from an office-intensive setup to a benching system, thus increasing your employee density. Maybe you set up a smaller satellite office in a more affordable part of town. Whatever your data tells you, there are technological solutions to support your decision.
Rob Anderson is an advisor at Cresa, where he works with the Denver brokerage team to represent occupiers across the front range. His responsibilties include business development, market research, strateic planning, site selection, financial analysis and lease negotiation.