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Small
Startups Finding Big Deals On Commercial Space
Landlords Betting That Cheap Space Today Means Long-Term
Leases Tomorrow
Banker
and Tradesman
Whoever said there’s no such thing as a free lunch must not have been part of a small startup business or nonprofit, where opportunities for finding operating space at reduced cost – or rent-free – are growing.
Property owners, some of whom are offering cheap space to startups for six months or a year, see the reduced-price digs as a means of cultivating tenants for the long-term.
Most startups only require one or two rooms, often for only one or two people, occupying 300 square feet or less, according to Eric Shapiro, principal and manager of Phoenix Park Business Center in Shirley. Rents at more traditional properties for such small spaces can often be too much for companies that began life during or at the tail-end of the recession.
Of the 12 million overall new jobs added in 2007, 8 million were created by firms less than five years old, according to a study of 2007 census data conducted by the Kauffman Foundation, which studies entrepreneurship.
That is part of why Phoenix decided to offer startups office and flex space for six months rent free. Nonprofits get a year free. And while the no-cost, newly renovated office space is not contingent on a future lease signing, Shapiro had no problem admitting that was the desired end result.
“We thought … it would make sense,” Shapiro told Banker & Tradesman. “We could give some businesses a hand to get out of their homes and into a professional business environment, and hopefully over time it will spawn some growth companies. There are no strings attached, but [a future lease] would be a good by-product if it worked out.”
The Right Treatment
For some landlords, the strategy makes sense, said Joseph Fallon, managing partner of FHO Partners commercial real estate advisors. As long as the costs are low to them, landlords that have the space are well-served offering a few offices for free or at a discount in the hopes that the company grows and signs on for a longer lease.
“Every case is quite different,” Fallon said of such situations. “We don’t see a lot of this, but most reasonable landlords, if they have the opportunity to do a relatively low-cost transaction, without a lot of tenant improvements, would be open to … renting space on a short-term basis,” to hopefully get a longer-term tenant in the long run.
At Boston’s Fan Pier development, 22,000 square feet of incubator space will be taken by more than 100 companies this summer as part of the MassChallenge program. The initiative is designed to bring biotech, life science and other companies to the city’s new innovation district along the South Boston waterfront.
At Cummings Center in Beverly, a version of the cheap space model is already working for Cummings Properties. For several years, the developer has offered discounted space for a variety of startup and biotech companies, with many staying in Cummings properties as their businesses expand. They have recently renovated the top floor of the former Microsoft headquarters in Beverly at 100 Cummings Center and are offering office suites to startups at $199 per month, utilities included.
Sacrificing dollars today for stability tomorrow is a strategy that works for tenants, too. SpineFrontier, a life sciences company that creates tools for use in spinal surgery, started out in just 300 square feet in 2007 on a short-term lease. Today, SpineFrontier occupies approximately 20,000 square feet at 500 Cummings Center in Beverly.
“[Cummings] for years has been of the mindset that if we are able to bring in small startup companies, they are able to grow into large companies if we treat them the right way,” said Steve Drohosky, general manager at Cummings Center, where companies’ footprints can range in size from 130 square feet to 130,000 square feet.
‘Greenhouse’ Space
Free and reduced-price space is certainly a benefit to a cash-strapped startup, but for life science firms just establishing themselves, the most important aspect of location is access to resources, said Tim Rowe, who founded and runs the Cambridge Innovation Center. There, companies can pay $250 per person each month to share space with other similar businesses and secure the all-important cache that accompanies an address in biotech-central, also known as Kendall Square.
Those resources include an affordable and educated workforce – think MIT grad students before they get their Ph.D.s – experts in the field willing to advise young entrepreneurs, and deep pockets, all of which can be hard to find in outlying areas, Rowe said.
Places like Cambridge serve a kind of “greenhouse” function for beginning companies, with the right amount of sunshine and nutrients – access to funding, cheap and educated labor – to help saplings grow into towering redwoods like Genzyme, Rowe said.
“We’ve had lots of our companies move out to Cummings’ space,” Rowe said. “They provide that next step up when companies need more space and don’t need to be in the center of things because they’ve already established themselves. Generally speaking the reason someone might be willing to pay a bit more early on in Cambridge might be that access. The cost part isn’t really the important piece. It’s the access part of it."
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