Sign In
Free Newsletter
When startups grow up, space a challenge
Listen to this articleLater this month, Mindgrub Technologies will celebrate the company settling into its new, 18,000-square-foot office space in Baltimore‘s bustling Locust Point neighborhood. The office, which the technology innovation company moved into in January, has all the amenities associated with successful tech company: Cafe. Check. Game room. Check. Climbing wall. On the way.
But before the company opened its dream office, it was just like many other startups in the Baltimore area, working out of a basement looking to find office space with a flexible enough lease to allow the company to grow.
“In the beginning when you don’t have office space, an office is like the biggest test that is just sheer overhead. Where even if you have people, people get stuff done. A lot of times you are more apt to hire another employee than you are [to lease] an office,” Mindgrub CEO Todd Marks said. “But if you look at the numbers, you’re way better holding off on hiring that next employee sometimes and getting an office that allows you to get your work done.”
Now that the economy for startups is turning around — a recent report by commercial real estate service firm Jones Lang LaSalle reported venture capital funding in Baltimore firms fell 14.8 percent from the year before, but 11 more companies received funding than in 2013 — more of these firms are expected to start shopping for office space. But finding that first office space isn’t always such an easy task.
“I think what [startups] like more than anything is flexibility and the opportunity to grow. The world is dynamic enough right now — it’s hard enough to write a business plan for a year let alone five years. On our end, we typically want lease commitments for three- to five-year terms and they need the flexibility to grow,” said Richard Williamson, senior vice president, leasing, St. John Properties Inc.
Complicating matters further, many startups want hip spaces that help form a firm’s identity and attract talent. But landlords can be extremely hesitant about sinking money into building out a space for a company that may not be in business long.
“Landlords are typically going to be, I guess cautious is the right word, with startups, and that could mean they may not want to put a lot of money into the space for improvements because they just don’t know how it’s going to pan out. The ideal scenario for landlords is, and also for the tenant, is if the space is already built out,” said Joseph P. Nolan, principal NAI KLNB.
Any growth in startups leasing office space in the Baltimore area is expected to remain localized in city submarkets like Federal Hill and Canton. The employees those firms want to attract and retain prefer the live-work-and-play aspect of an urban setting. Also, finding space that has some of the quirky design features, such as exposed brick and open floor plans, that many startups are attracted to can be difficult to find in suburban settings.
“For startups in general, things they’re looking for are access to those kind of shared spaces and amenities so they don’t necessarily have to take those on within their own office leases, especially kind of in the early stage …. and often are locating nearby other startups, other companies kind of in their same field or industry,” said Peter Jackson, associate at Jones Lang LaSalle.
(RENDERING BY HORD COPLAN MACHT)
Some companies are positioning themselves to take advantage of startups that don’t want to be located in the city. Levi Cohen, regional director of leasing for BECO Management, said his company is trying to make its properties more attractive by adding amenities that can compete with office space in urban areas.
“The urban trend is a bit shortsighted in terms of what’s happening now. It’s a Millennial-based trend that you’re trying to get these kids who are coming right out of college and these are the environments they like working in,” Cohen said. “But five years from now when all these people are getting married, having kids and moving to the suburbs, they’ll want to be in the suburbs closer to where they live.”
