2 New Ways Small Businesses Are Overcoming Hurdles To Finding Office Space

When it comes to leasing office space, small and midsize tenants are an underserved market. 

“A significant percentage, upward of 70 to 80%, of the deals in major cities across the country go underrepresented,” Truss co-founder Marshall Hudes said. “They don't have anyone helping them.”

But solutions are starting to emerge for these small tenants. CRE tech companies like Truss, TenantBase and LiquidSpace are creating online platforms that make small space easier to find, and coworking is providing attractive options for entrepreneurs and small-business owners.

The traditional commission-based brokerage model is a disadvantage when representing tenants who desire less than 5K SF, said Trey Miller, a senior broker for Boxer Property Management Corp., a company that specializes in office space for small and midsize tenants. The smaller footage mean fewer dollars for brokers.

"You quickly realize, if you work on too many of [the small deals], you won't be able to buy lunch," he said. "For the amount of time you have to invest with the client, the return on the immediate investment in time is going to be negative. They are underserved simply because they have to be."

Bisnow's Houston Workplace of the Future event will have a panel on office leasing Aug. 28.

Until recently there wasn't a mechanism to provide great service to the smaller tenants, Miller said, but the recent proliferation of new options may help the softening office sector in Houston. 

"To the extent that it makes it easier for the consumers to find a professional, even as inadequate they may be compared to the competent tenant reps in the city, it's a net positive from where we were a few years ago," he said.  

Solution 1: Ditch the broker and turn on the laptop

The online brokerage process is faster than traditional brokers, who usually take a week to compile a list of potential units for interested parties, Hudes said.  

Truss clients fill out a short questionnaire outlining their criteria, such as lot size, desired location, lease term and rent range. Then, the software generates a list of potential units within minutes and offers 3D virtual tours, property brochure PDFs and other information like nearby retail and dining options.  

The platform also provides business owners with jargon-free rental rates that factor in the electricity and other costs for each property, which is beneficial for less experienced tenants, Hudes said. 

“It does all the math for them,” he said. “Our customers are not looking at properties they cannot afford.”

Lastly, the platform assigns a tenant rep who will help secure a property, which can include touring a unit with the client and negotiating the lease term and add-on amenities such as the placement of plumbing and electricity. This is a free service for clients as the company is commissioned by the landlords. 

The Hairdressers co-owner Albert Dominguez used the Truss platform in early August to sign a new lease for his small hair salon. The 1,100 SF office unit is in the Greenway Plaza area in Houston. 

Dominguez found being a small-business owner a hindrance in the real estate world — he had a low budget, lacked CRE fundamental knowledge and was simply too busy to manage the office hunting process. 

He also encountered long response times and rude brokers and landlords who failed to return his calls. He and a friend with no real estate experience pursued four office options and each failed because the landlord pulled out of the deal.

"Looking on my own, it was impossible," he said. "I need someone that would do it on my behalf." His friend saw a social media ad for the Truss platform, which ultimately resulted in a lease for The Hairdresser.

“What I could not do in [four] months, [the Truss tenant rep] did in a week,” he said. “I never negotiated anything. The broker took me to see [the property] and she asked me if I needed to add anything. She made a list [of the things I wanted], and negotiated with the landlord.”

However, Miller worries that the online brokers are not as insightful as traditional tenant brokers, who have spent time in the market, established relationships with landlords and have deep market knowledge. 

"[Smaller tenants] are getting better service than they used to, but it is not the same treatment if you get a 40K or 50K SF tenant," he said.

Solution 2: Ditch traditional office and go coworking

Small-business owners can also turn to coworking to solve their lease woes. 

Though coworking is still new and limited in Houston, it is growing. WorkSuites, previously Meridian Business Centers, announced plans Monday to double its Houston area footprint with a new location in Sugar Land, two more by the end of the year and up to four by the end of 2019. It already operates two locations in the city and 13 in the Dallas/Fort Worth area.

“The Houston office space climate is very dynamic and the variety of flexible workspace options here is growing rapidly," WorkSuites CEO Flip Howard said in a release. "We are excited to be expanding and serving more areas of Houston with our updated model of private offices in a professional community centered on productivity." 

The Work Well, launched by Caldwell Cos. in March, is also a new coworking company on the rise. It occupies a full floor of a three-story Class-A office space off FM 1960 and Highway 290 in Cypress. In August, occupancy topped 60% with the majority of the clients living in the area, Director Miranda Hadamik, a panelist at the Workplace of the Future event, said. 

The Work Well plans to open additional locations in markets where many entrepreneurs live, particularly suburban areas.

Coworking can be helpful to small tenants, even beyond providing physical space. The Work Well offers a range of business programs such as lunch-and-learns, networking events and brand enhancement seminars designed to propel the companies to the next level. Hadamik regularly surveys the clients to determine their desire for new features like a soundproof room. Other tenants in the building can access the suite's amenities, such as a coffee bar, a conference center and open space for events.  

“We want to allow our members to free up the time they spent managing their office and focus on running their business,” she said.

Over the next five years, Hadamik expects more demand for coworking space with a focus on member services. The platform can spark absorption for landlords, which makes it an attractive tenant to a building, Hadamik said. Coworking companies lease a large portion of a building and then are responsible for filling it.

Since coworking is a minuscule portion of the sector, Miller said it is too early to measure the potential impact on lowering vacancy rates. But he thinks it has some benefit on absorption.

"It is getting people out of their homes or cars, wherever they are conducting business and into some type of brick-and-mortar office space," he said. "To [the extent coworking is] doing that, it is helping." 

The triumph of the coworking model will depend on improved relationships between brokers and landlords and the expansion of brands to need more and more office space, according to Hadamik.

“This is finally giving them somewhere to send those smaller or individual clients, who are not necessarily a candidate for traditional office space,” she said.

Join Bisnow at the Houston Workplace of the Future event Aug. 28 to hear more about coworking and other office leasing solutions.