Are you planning to move to a new office? Whether it’s your 1st or 5th time, moving into a new office is exciting. With all of the excitement, it’s easy to jump right into your search for office space – without considering your budget.
But, to find the best office space for your business, you have to figure out how much you can spend on a new office.
You might envision the hottest neighborhood, with the best amenities, in a premier building. But your business might not be able to sustain the costs of your wish list. It’s important to know your budget to make sure your wants and finances match up. That way, you’ll save time looking for office space. And, you’ll find an office that will help your business keep growing – rather than draining it financially.
Stumped when it comes to creating a budget for your new office? Here are five steps to simplify budgeting for your new office.
First, Calculate Your Estimated Rent
Rent for your new office is based on price per square foot (sq. ft.). Your overall rent (price per sq. ft. x your sq. ft.) is determined by several variables:
- Building Class
- Building Out
To estimate your rent, you need to know what you’re looking for in each of these categories.
What Building Class Should You Choose?
Office buildings come in 3 classes: A, B, and C
- Class A buildings are the newest and most updated office buildings. They tend to be in the most desirable locations. And, they offer top of the line amenities – like restaurants, security and fitness areas. These buildings are best suited to businesses with large budgets that need to impress clients or recruit top talent.
- Class B buildings are older and often in less desirable locations – like outside the city center. But these offices still have many amenities. And, they tend to be cheaper. These offices work well for companies who want a good space but don’t need all of the features – or cost – of Class A buildings.
- Class C buildings are the oldest and in less demand. They offer few – if any – amenities and are often in less desirable locations. But, Class C is the cheapest to rent in most markets. These buildings are best suited for businesses with tight budgets and basic needs.
There are several additional factors that influence a building’s classification. For example, a building that might be considered a Class B building in a downtown area could be considered a Class A building in a suburban area.
What Location Should You Be In?
After you decide on a building class, you need to choose a location. Where your office is located can impact the amount of business you have as well as employee recruitment and retention.
Determine whether you need to be close to your clients
Do you often host client meetings? If so, you should choose an office location that’s close to clients and easy for them to access. If not, then you don’t need to prioritize locating your office close to clients.
Figure out if you need to be in the city or suburbs
If you frequently work with clients in the city, having an urban office is a good choice. But, if budget is a concern and your customers aren’t based in the city (or are willing to travel), a suburban location is a good choice.
Consider office proximity to amenities
Having the right amenities like restaurants, coffee shops, public transit and parking will keep your employees happy and help you attract top talent when you’re hiring. If your employees use public transit, you’ll want a location close to bus stops or subway stations. But, if they primarily use cars, you should choose a location with easy, close, and cheap parking.
Should You Build Out?
Along with the class of building and location, building out office space will also impact your rent. Building out your office means you do custom construction to create your perfect space.
If you build out, you’ll create an office space that meets all your wish list criteria. But, it will make your office space considerably more expensive. Custom renovation can add upwards of $100-$200/sq. ft. to the overall cost of your office.
Spec suites are a lower-cost alternative to building out. These spaces are already finished by the landlord. So, you don’t have to do anything other than move in – in a matter of weeks, not months. If you choose a spec suite, you’ll likely only need to supply furniture and appliances.
Another option to save money and avoid building out is subleasing office space from a current tenant. Instead of leasing directly from a landlord, you can sublease from a current tenant for a lower rate. If you have a tight budget, subleasing an already finished space is a cheaper alternative to building out.
Coworking space is another option instead of building out. Offering shorter leases, coworking spaces have a lot of flexibility. With options ranging from renting a single desk without storage to leasing private offices for your entire company, coworking spaces offer a solution for most businesses. You’ll get a finished space with amenities traditional offices don’t offer.
Building out is perfect if you want a fully customized space. But, if you don’t need a fully custom space or have a tight budget – spec suites, subleasing, or coworking are good alternatives.
How Much Space Do You Need?
Whether you want a coworking space or a traditional office, you need to know how many sq. ft. you need when creating a budget. How much space you need depends on how many employees you have, what type of space they need, and how many employees you’ll likely add.
Typical employee space needs are:
- 150-400 sq. ft. for executive/manager offices
- 125-175 sq. ft. for cubicles
- 100-125 sq. ft. per person in open workstations
For a rough estimate of your needed space, you can multiply each of those estimates by how many employees you have in each category. If you have 2 executives (800 sq. ft.), 5 cubicle employees (875 sq. ft.) and 3 open area employees (375 sq. ft.), you would need around 2,050 sq. ft. in workspace.
Next, you need to consider which common spaces you need:
- 300 sq. ft. for a 10-person conference room
- 325 sq. ft. for a 10-employee break room
- 200 sq. ft. for a reception area
So, if you need a conference/meeting room, break room, and reception area, that will add an extra 825 sq. ft. to your office space – bringing the total to 2,875 sq. ft.
The last consideration in terms of space is your future needs. If you are looking at a longer-term lease option, you will want to choose an office that will grow with you. You will also need to budget for the space you’ll need as your company grows.
To account for future growth, you could also look for a space with a short-term lease. So, you can move to a larger office when needed.
Understanding what kind of office layout (lots of private offices, open concept, many common areas) your business needs will make this process more accurate.
Now, How Do You Estimate Your Rent?
After you’ve determined building class, location, whether to build out and how much space you need, you’re ready to look at comparable buildings. To do this, look for buildings in the same building class, location, and that require the same amount of building out.
Estimate your rent with Truss: Answer a few quick questions when you sign up for Truss and get instant access to options that meet your needs and budget. You’ll receive personalized search results and get matched with a broker — all at no cost to you.
Second, Estimate Your Utility Costs
Utilities (electricity, gas, water, internet, and more) are a significant office cost, so it’s important to estimate them when creating your budget.
If you already have an office, an easy way to estimate your new utility cost is by looking at your current utility bills. It will give you an idea of your current electricity, gas, water, and internet usage (among others).
To find your new utility cost, you want to divide your total utility bill by your current sq. ft. Then, you multiply this number by your new estimated sq. ft. – which will give you an estimated utility cost.
If you don’t already have an office – don’t worry. You can still get a rough estimate of your utilities. To get an estimate, you can find the unit utility price in your area and multiply it by the average usage.
You can repeat that process for water and gas to come up with estimated monthly expenses for them.
With internet and phone, you can typically get a quote from your local service providers for the monthly costs of the services you need.
After estimating monthly costs for all of your necessary utilities, you can add up the prices to get your total monthly utility estimate for your new office.
Third, Factor in Your Office Equipment
Whether you’re moving to a new office or your first office, you’re going to need to buy furniture and supplies. Many business owners forget to factor this into their budget and end up spending much more than they expected.
Your biggest office equipment expense is typically furniture. If you’re moving into your first office, you’ll need to buy desks/chairs for each employee. If you’re moving to a bigger office, you’ll need to buy additional furniture or upgrade existing furniture. Plus, you might need to buy common area furniture (like cubicles, conference tables, and breakroom seating).
How much will this cost? Startups and small businesses generally spend:
Office furniture comes in a wide range of prices: you can buy new or refurbished furniture that matches your budget to get your overall costs, you should multiply the number of furniture items needed by the likely cost per item.
Along with furniture costs, you’ll want to budget for common office equipment – like printers, scanners and shredders. Plus, you’ll want to factor in the cost of every-day office supplies – like pens, business cards, and staplers. You can budget for these items by browsing your local office supply store or online to find the price of the supplies you want.
Adding the furniture and supplies costs together will give you your office equipment budget.
Fourth, Compare Your Total Budget to Your Expenses and Revenue
Once you’ve determined your estimated rent, estimated utility costs and office equipment costs, you should total up the numbers for your overall office budget.
Then, you should compare your estimated monthly and upfront budget to your business earnings and operating expenses. If your office budget is a small-medium percentage of your revenue, then you’re ready to move to the next step. But, if your office budget is a large percentage of your revenue, you should consider revising it. You want your new office to promote business growth – not hinder it.
So, you should go back through the steps and reconsider wants vs. needs. Maybe you could lease an older or smaller office space in the suburbs. Or, you could reduce your internet/phone plan or included amenities. Or, you could spend less on furniture and supplies.
By considering these options, you can bring your budget more in line with your cash flow and expenses. Then, you’re ready for the last step of budgeting for your office.
Fifth, Choose a Tenant Rep Broker
Once you have your estimated budget, it’s time to choose a broker. While you could search for office space yourself, the process will be longer and more frustrating. And, you might miss out on the perfect space.
Commercial real estate brokers know the local real estate market. They have industry relationships and access to commercial property listings you likely won’t find on your own. So, they can point you towards spaces that fulfill your wish list and fit within your budget.
Brokers also arrange tours, handle negotiations, review lease terms, manage lease signing and much more. By having a broker handle the details, you’ll find the right office space in less time – freeing you up to focus on growing your business.
Plus, tenant rep brokers are free of charge for businesses seeking office space. They earn their commissions from the landlord. So, you don’t have to pay anything to take advantage of broker expertise.
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