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The average monthly cost of renting an office in some of the biggest tech hubs is roughly $33 per square foot. While the cost can vary widely based on location, size and several other factors, it's important to have a strong understanding of these costs to best assess a good opportunity. Renting an office is often a business's first major, multiyear expense, so it's especially important to be efficient. We prepared a comprehensive guide to walk you through exactly what to expect so you can acquire the best office for your business or startup.
How to Start Your Search
Start with figuring out how much space you need, keeping in mind the cost per square foot will vary widely by city. Estimate roughly 150 square feet for every employee, plus extra room for any equipment and supplies. Your lease or purchase will likely be a multiyear agreement, so it's best to account for future employees, too.
Approaching your search unprepared can result in getting a less-than-optimal lease, so get an idea of what the local market typically demands for the space you need. Then create a budget, taking into account other costs involved in renting a commercial space, such as insurance, utilities, cleaning, office supplies, and potentially an office manager or administrative assistant. Expect operating expenses of about $7.86 per rentable square foot each month.
Typical Costs of Commercial Real Estate
The average monthly cost of commercial real estate among the 28 metro areas we studied was $33.80 per square foot. We focused on data from tech hubs, which are where most startups and small businesses are forming.
|MSA / region||Average cost per square foot per year|
|San Jose-Sunnyvale-Santa Clara, CA||$53.76|
|San Francisco-Oakland-Hayward, CA||$72.30|
|Austin-Round Rock, TX||$35.81|
|Atlanta-Sandy Springs-Roswell, GA||$26.53|
|San Diego-Carlsbad, CA||$36.36|
|Los Angeles-Long Beach-Anaheim, CA||$42.90|
|New York-Newark-Jersey City, NY-NJ-PA||$72.59|
|Houston-The Woodlands-Sugar Land, TX||$29.37|
|Dallas-Fort Worth-Arlington, TX||$26.43|
|Durham-Chapel Hill, NC||$24.58|
|Minneapolis-St. Paul-Bloomington, MN-WI||$25.65|
|Las Vegas-Henderson-Paradise, NV||$19.32|
Common Lease Types
Tenants will have to pay a monthly base rent, which is the amount due before expenses like utilities and maintenance fees. However, there are different types of leases that dictate what you'll pay your landlord every month.
Gross lease: Tenants are responsible for an all-inclusive base rent. The landlord will initially bear all other costs upfront, and the rent that the tenant pays will cover taxes, insurance and maintenance.
Single net lease: Tenants are responsible for base rent, taxes, utilities and janitorial services. The building property tax is split among tenants depending on how much of the total building is leased by the tenant.
Double net lease: This is similar to a single net lease, except the tenant is also responsible for a portion of the the property insurance, depending on how much of the building they occupy.
Triple net lease: This is similar to a double net lease, except the tenant is also responsible for maintenance fees. This is the most common lease type, and tenants are charged for every cost by the landlord on a prorated basis. Tenants have the benefit of transparency with this lease.
As with any lease, you'll want to be very clear on which costs are being paid by which party. Legal battles between tenants and landlords in the commercial space are extremely common, and the best way for tenants to safeguard themselves is with clear and comprehensive contracts.
Office buildings also differentiate by classes based on the location, age of the building and other factors. Classes will range from A to C, with A being the highest. Of course, class A buildings will usually demand the most rent but will also feature new construction, high-quality amenities and top-class tenants. We recommend you choose class A or B buildings, as the age of class C buildings tends to be 20 years or older, and these buildings may require costly repairs and upgrades.
Common Services and Amenities to Look For
No two office spaces are the same, and one way to differentiate your search is by analyzing the amenities they offer. Some are more important than others, and we ranked each by what we consider to be most important.
Interior glass: Nothing is worse than feeling trapped inside an office. It will benefit both you and your employees to have windows that face directly outdoors.
Large conference rooms: It can be irritating for employees to cram into a tight conference room every time a large meeting is held. Since it can be hard to change the size of a conference room after a lease is signed, make sure the office has rooms that can comfortably fit your projected number of employees.
Outdoor amenity areas: This will be harder to find in denser cities, but an office with an outdoor area where employees can take a breather is a huge plus.
Alternatives to Traditional Offices
Having an office can be expensive. On top of the monthly rent payments, you may also need to pay for maintenance, utilities, furniture and more. All of those costs add up and can be quite expensive for a small business or startup. If you're hesitant because of the costs, you're not the only one. Market demands have led to the rise of alternative office formats. Here's how each type of office alternative differentiates itself.
|Co-working spaces||Businesses can rent desks or private offices in these shared spaces.|
|Executive office suite||These are separate spaces in offices that are already occupied. You'll be able to leverage perks like administrative support, utilities and more.|
|Startup incubators||More suited for startups, these can often provide office spaces in addition to mentoring sessions, workshops and other services designed to help your startup grow.|
In your search for an office, you may come across a few unfamiliar terms. Here, we define common terminology used by brokers and landlords.
Usable square footage: This only includes the total square footage the tenant occupies, which doesn't include common spaces shared with other tenants such as lobbies and shared bathrooms.
Rentable square footage: This includes usable square footage plus shared spaces.
Loss factor: This is the difference between the usable square footage and the rentable square footage.
Tenant improvement allowance: This is an agreed-upon amount that the landlord compensates the tenant for various renovations.
We derived our findings from the following sources.