Arun Patro from 91Springboard talked about the do’s and don’ts of signing lease agreements for coworking spaces in CUAsia 2017. Real estate is an integral part of coworking, and Arun was kind enough to share some tips on how to set up a coworking hub efficiently.
Those who endeavor to develop a coworking space, usually start off with leasing the space. You don’t want to sink in too much money before you get your coworking space up and running. To ‘ get real,’ Arun states that an important aspect to consider when setting up space is -location- you want to be in a prime place with an accessible location that facilitates in drawing crowds. Once you have achieved that, you should think about profitability, ‘What exactly are you doing by creating a coworking space, collecting coworkers, building a community, if you are not going to survive for the next five years?,’ said Arun.
Landlord’s think of coworking as the fastest growing segment in the commercial real estate; wholly serviced office spaces take up less than 4% of the total commercial real estate, out of which only 0.25% of them are coworking spaces across the world. Statistics show by 2020, 80% of offices spaces will be occupied by coworking; therefore landowner’s have loads of interest to work with people who can activate an asset they hold. As a coworking space, you will have to think of ways to keep your culture and ethos intact, while worrying about how the landowner will react if you change your business model or sublease a space. Arun points out that such worries can be tackled by simple due diligence. You should aim to figure out who you are working with, how inclined are they to work with you, remember that you need to work together on this, you cannot just treat it as a simple landowner-tenant relationship, that thought process is not feasible for the long term.
In the spirit of sharing information, Arun points out few factors to focus on when choosing the right space; efficiency – he refers to the loading factors, the carpet area you can use to access the space vs. the total area you can use. A simple way to think about rent is to think about what you are going to pay as rent inclusive of all other maintenance charges and divide that by the number of desks you have, and that will give you the cost per desk. Working on that number will be a lot easier on you.
You must also think about the tenant mix; for example, your office is right beside investment bankers who work prefer to work in an elegant environment, yet you would instead work in an environment with a grunge garage look, that might not be a right mix at all. The moment you get complains from the other tenants; the landowner will base his decision on who pays more, and more often than not you are going to be the one to pay him less.
Understand how eco-friendly the building is, if the landowner has invested in making a building high in quality and efficiency, there is no doubt that he will expect a higher rent. If it is honestly a lead certified building, you save up to 30% on electricity, when that amount is summed for five years, that is a pretty significant figure.
You should look into the facilities offered by the building. In India whenever you obtain a particular space, you also have an adequate number of carpark associated with that space. When you want to calculate your total loaded cost, think of what you want to offer to your customers, such as car parking services.
In developing countries, you don’t get the right kind of speed everywhere, and without internet, almost all of your work would come to a halt.When you are thinking of a proper place to lease, make sure there are good internet service providers in that area.
There will be a lot of hidden costs when you are talking about rent. It is also important to understand whether the rent includes property taxes which are paid by the landowner; the property taxes are subjected to change for a few years. Most landowners will not shed away the economic uncertainty and be happy with whatever rent you may be able to pay; this might come back to bite you. For example, you got a space for 5 lac rupees or 100,000$, but you pay the additional taxes, whenever it is levied upon you by the government. Are you willing to take such risk?- Is an important fact to consider.
Next comes the negotiation, always make sure the terms are mutually agreeable. Never try to win a negotiation, explain your point of view, do not budge from what you are trying to do and do not oversell yourself, and finally understand what your business model demands. Think through the long-term risks of starting a coworking space; if you have an area which is not going to have even a 60% occupancy rate in the first year, you are losing money, there is no use in wanting to lower the rent rate if it is not occupied. Be willing to pay more if you have a space that works for you. Now, you are at the point where you are on equal terms with your landowner and have no further need for a legal framework in signing the lease document.
A lease agreement does not provide the guidelines on how to operate on a daily basis; it is to tell you what to do when things go wrong, and you still want to redeem the situation. For example, you have a beautiful space, but there are broken stairs, who will fix the stairs? Try to create a lease document that covers every aspect of the business, rather than being satisfied with short-term happiness, think of things that could go wrong in the long run and build a contingency against them in the agreement. The more thorough you are in putting these clauses in, the easier it’s going be for you to implement them when the time comes. These are not clauses for regular operations, these are clauses for exceptions, as in what happens when things go wrong.