We’re living in the golden age of the high growth startup. Businesses across virtually every industry are being created and growing with blinding speed. Companies are exploding in size from two people in a coffee shop to 200 employees in 18 months, and the challenges associated with this kind of rapid growth are numerous. One big challenge is accommodating the rapid growth in employees and providing office space for them. What happens when your office lease needs to grow from 2,000 square feet to 20,000 square feet in 12 months?
Companies growing rapidly face pressures from all sides, and moving to a new office space while growing can cause issues. One of the best strategies for accommodating rapid growth is renting space in office buildings with large blocks of contiguous space. A building with 400,000 square feet of available space is going to more easily accommodate growth than one with only 40,000. Buildings that have recently lost an anchor tenant are great options, as they will have these large blocks of space available.
Big commercial landlords are likely to have experience working with rapidly growing companies. And with a large portfolio of buildings and space, they are going to be better able to accommodate the needs of your rapidly growing company. If you do happen to outgrow the building you’re in, they are much more likely to have a suitable block of space in a different building, allowing you to grow with them and avoid lease complications.
A tenant rep with experience working with rapidly growing companies is also going to be immensely beneficial. They’ve been there before, and know the complications that come with rapid growth. They are going to know where the big blocks of space are, which landlords are most accommodating to rapidly scaling companies, how to deal with problems like acquiring office equipment quickly, and how to negotiate as favorable a lease as possible, among many others.
Lease negotiation is an important part of any commercial real estate transaction, but it is especially important for companies with explosive growth. A couple specific elements worth exploring are the right of first refusal and phase ins.
The right of first refusal allows you to match an offer on space that a third party is going to take in the building next to your own office space. So if another company is going to take the space next to yours, you have the option of leasing that space instead.
A rent phase in is another powerful option, especially for companies that can reasonably predict their growth out for a year or two. A phase in allows the tenant to lock in a larger block of space but only pay for a fraction of it initially. For example, you can lease 20,000 square feet of space, but only pay for 5,000 initially, and then pay for 10,000 6 months later and then by the second year of the lease you’re fully phased in.