1. Start your process EARLY.
Begin planning for an office move at least 3-4 months before your ideal move-in date. The typical Leasing Process from start to finish can take anywhere from 2-6 months. This depends on a variety of factors:
Speed: We know you can move quickly and so can your broker, but can the Landlord (or Sublandlord if it is a sublease) move as quickly? The answer is usually no, so jump in early and allow others for extra time.
Tenant Improvement Work: Is there any construction that needs to happen in order for you to move in? This could add another 2-3 months to your timeline.
Sublease vs Direct: Are you planning to sublease your new space? Subleases are especially popular options in San Francisco and are great for hypergrowth companies because they frequently come as "Plug & Play", fully furnished suites. That said, when you sublease space in any building, you are required to go through a final extra step after the sublease process: Landlord Consent. The Landlord has a 30-day window to review the Sublease & the incoming Subtenant's financials and determine whether they consent to the sublease or not. If not, the Landlord usually has a right to recapture the space (email us directly if you'd like to discuss Recapture in more detail).
Finding the Right Space: You can find your perfect space in the first building you see during your first tour. That usually is not the case. It takes time to find the perfect space for your company. We see various situations where companies will begin their search 1 or 2 months prior to their Lease Expiration and get forced into a space that isn't perfect for them because they were on a time crunch.
Note: The only 2 scenarios where things can move a lot quicker are in coworking suites (WeWork/Regus/Knotel) or in Live/Work suites.
Do you know how many employees you will have in the next 12 months? How about the next 24 months? Reality is, it is difficult for startups to project headcount growth far into the future. We see too many scenarios where companies lease either too little or too much space and end up needing to move again far sooner than they hoped. This is what makes San Francisco one of (if not the) hottest sublease markets in the country.
When leasing directly from the Landlord in San Francisco, Landlords typically try to push Tenants to go for long-term leases (at least 3-5 years if not more). Their goal is to keep their spaces leased and earn additional revenue from the 3% annual increases that come with every lease, which is understandable. The longer the lease term, the less work the Landlord has to do in marketing the space and leasing it to a new tenant (and possibly having to incur the cost of having a vacant space).
Push back! Don't commit to 3 years if there is an 18-month sublease out there that fits your company's needs, especially if you are not sure where your headcount will be in 3 years. Do everything you can to stay flexible so that you do not have extra liability and incur the cost and time of subleasing space and "becoming Landlords".
Leasing office space is similar to renting an apartment in that it is a sunk cost for your company. You don't own it and you can't earn appreciation from it, so do your best to minimize your overall expenses.
Until your company grows more and can afford to spend the money needed to improve your space, build extra conference rooms & make it nice enough to attract the talent you need. Try to stay away from doing Tenant Improvements in your suite. Paint & carpet/flooring is okay, but once you begin moving walls, building rooms and working on the electrical, construction costs really add up and (speaking from experience) companies almost always spend more than they originally estimate when planning the project.
San Francisco is an insanely competitive market. We're hovering at ~4% vacancy throughout the city, which is SF's lowest vacancy rate since the dotcom boom. Spaces come and go extremely quickly in this market.
As we have noted, SF is a fast-moving city when it comes to office space. Work with someone you know is on top of the market, continuously sending you new opportunities and keeping you updated throughout the lease process.
Know what's going on throughout the process. Having a broker you trust and can call/text for a quick update is crucial. It is unacceptable if your brokerage team is unresponsive or if your broker keeps you out of the loop. Good brokers will keep you posted throughout the process and make sure you know where things stand. There may be situations where you lose out on 1 or 2 or 3 spaces because of high demand and stiff competition, but continuing to stay on top of the market and evaluate new options is crucial to any tech company in San Francisco looking to find creative and flexible opportunities.
We would be happy to answer any questions about these 5 things to consider or about real estate in general. Please don't hesitate to email or give us a call anytime!
Jenny Haeg | Global Real Estate Services
Reuben Torenberg | Global Real Estate Services