Small business startups in the tech industry are flourishing in California, and commercial real estate brokers are advised to take notice. As new tech startups continue to lay roots and crop up across the state, the commercial real estate market is facing high demand for attractive office spaces that will draw in the right type of business — and the right type of tenants.

Tech companies in search of long- or short-term commercial leases provide real estate brokers a chance to improve their own business by expanding their client base and helping startups find the desirable office spaces they require to best operate their businesses.

Brokers who want to add tech business startups to their list of clients will need to stay on top of California’s commercial trends to understand just what tech startups are looking for and where they are best suited to set up shop. While commercial brokers typically favor long-term leases, the unique lease agreements and office spaces sought by tech startups provide brokers ample opportunity to benefit from this expanding niche market.

Meeting the demand

Taking advantage of the growing number of tech startups requires an understanding of how to accommodate these clients. Tech startups are primarily searching for:

  • flexible lease terms;
  • reasonable lease prices; and
  • centralized urban locations with a sufficient local labor force.

As new startups form and make their first forays into the market, their sustainability is not guaranteed. Thus, more flexible lease terms are a unique requirement specific to tech startups. A successful startup may expand rapidly, outgrowing an existing long-term lease which binds the business to an office space that no longer meets the company’s needs and keeps them chained to a space that doesn’t allow room for growth. Think of a hermit crab that has outgrown its claustrophobic shell.

Conversely, an overly optimistic tech startup may enter into a long-term lease on a lofty space, only to find it can no longer support it when its business dwindles.

Commercial brokers can step in to help tech startups obtain the flexible terms they need to accommodate an unpredictable growth pattern. A broker will find success by focusing on short-term leases, or lease agreements that allow a startup tenant to scale up or down in tandem with their business. [See RPI Form 552 through 552-8]

Similarly, volatile tech startups typically do not yet have the income needed to sustain high monthly rental amounts. These clients require moderate lease prices that allow them to gain a foothold in the market without excessive overhead costs that invert their balance sheets and hinder their growth.

Here, commercial brokers need to find low- to mid-priced listings among the costly office spaces now common in high-demand urban cores, such as San Francisco and Los Angeles. When these locations do not yield monthly lease prices commensurate with a startup’s financial abilities, redirecting clients to nearby outlying regions will likely lead to favorable price points.

For adaptable tech startups willing to venture into new locations, suggesting alternative, less costly cities may be an appropriate solution, as tech startups are now being drawn to currently affordable up-and-coming cities that show potential for future growth.

Finally, location and style are increasingly becoming top items on tech startups’ checklists, determining which office spaces they choose. Startups thrive on skilled labor and proximity to booming city centers — the same location and amenities attracting their desired employees. The suburbs will not likely meet the standards for these businesses.

Thus, commercial brokers need to have an eye for active and emerging markets. This translates to office spaces either in the less populated city core, or in nearby peripheral neighborhoods — the closer to universities, research centers and skilled employee populations, the better. Even low-demand regions with potential for future growth suit the needs of tech startups, as these markets offer long-term stability and give startups a competitive edge in the local market. Further, with the increased proliferation of speedy and reliable internet access, work can be done from nearly everywhere — not just the coveted tech enclaves of Silicon Valley.

In addition to location, brokers need to consider the style of the office space. To tech startups, the office space is frequently part of their brand. A large, open space supports the innovative work arrangements and amenities often found in emerging tech workspaces. Without sufficient hedonistic office amenities, it becomes increasingly difficult for new startups to find — and retain — the right staff.
[dfads params=’groups=37813&limit=1&orderby=random’]

Reaping the benefits

Commercial real estate brokers who adapt their business approach for tech startups stand to gain long-lasting benefits to their brokerage. Specializing in the unique needs of tech startup clients allows a broker to:

  • take advantage of the booming demand for tech office spaces;
  • foster business relationships and referrals within the tech startup community;
  • gain loyal clients who will likely turn to the broker for assistance as their tech startups grow and additional office space is needed; and
  • expand their knowledge and expertise to increase their marketability to commercial real estate clients.

As tech startups continue to populate California’s real estate market, commercial brokers who become an expert in this lucrative niche will secure long-term business throughout the state’s thriving urban regions and surrounding areas.
Related article:

Entrepreneurial cycles: New business establishment and California real estate