One of the greatest challenges facing businesses during the critical years of start-up is controlling overhead costs. One cost-saving move is sharing office space.
In this case, the existing tenant (sub-lessor) leases part of his or her office space to another business (sublessee). This arrangement allows both parties to reduce their rental costs and use the savings to offset other expenses.
For the past three years, Larry Powell has subleased space from three different companies. Powell’s subleasing deals have been somewhat atypical in that he’s been able to trade his services for space.
Powell started his namesake advertising and graphics design firm in 1993 out of his small Dallas apartment. As business grew, he needed more space. From 1994 to 1995, he shared an office with a public relations firm he learned of from a magazine ad.
“In the first situation, I didn’t pay any rent. Instead, I did advertisements, brochures and other marketing materials for the other firm,” explains Powell. “We had a formal contract that said how many hours equaled the amount of monthly rent that would have been required for the space. In this case, 250 sq. ft. of space was worth $500 a month.”
Powell placed the most minute details in his contract, including the number of hours he could use the office, which areas were off-limits, what equipment he could use, parking arrangements, even how many sets of keys he could have.
Typically, the sublessee gets a discount, $5-$10 less per sq. ft. than the going rate. On average, the cost of space runs anywhere from $10 to $65 per sq. ft., depending on the location. Other benefits may include a central receptionist, conference room, fax, copier and other office equipment.
The second time around, Powell split the rent, paying $1,000 a month for 500 sq. ft., one-fifth of what he would have paid for the entire 10,000 sq. ft. Half of the space was paid for in cash, the other half in trade. This past December, he moved into a building in downtown Dallas, where he shares space with a former colleague. He now pays a flat fee–$900 a month for 600 sq. ft.
Subleasing has allowed him to incur costs incrementally. “In the first deal alone, I saved $4,000 a month,” explains Powell, who had $500,000 in revenues in 1997. “I was able to use that money to buy a fax machine, copier and computers.”
What if you are a company that wants to sublease space? Keep in mind that you’re still responsible to the landlord for paying the entire rent and honoring all other provisions.
Dexter Wimberly, CEO, and Barney Bishop, president of August Bishop L.L.C., were able to launch their New York marketing firm in 1995 with hardly any start-up capital, in part because they shared office space with their attorney. When the fledgling entrepreneurs moved into their own office this past June, they decided to take in a tenant. They share 2,500 sq. ft. of office space with Essenkay, a startup fashion design firm.
“They needed their first office, and