Comparing Commercial Office Space Rental To Shared Law Office Space - Part I
There are hundreds of thousands of opportunities to rent commercial office space throughout the U.S., but increasingly we are seeing landlords shy away from smaller tenancies in favor of larger companies with a single point of contact, and often more stable financials. The result of this "shying away" is that opportunities for smaller professional firms to rent commercial office space have tightened up as there is less (good) product to go around.
The sweet spot for the solo practitioner is between 1000 and 1500 sq. ft. Usually, this footprint can accommodate a Partner size office (or 2 standard offices), room for 2 workstations, a small pantry, an area for copier + storage and a reception area. Depending on the layout you can sometimes include a conference room
So, ideally we'd include:
- Partner Office (12 X 17)
- Associate Office (10 X 12)
- Conference Room (12 X 14)
- Copy Room / Wet Pantry (12 X 12)
- Workstation / Reception Area (14 X 15)
- Circulation (250 sq. ft.)
This adds up to a total useable area of: 1,096 sq. ft. which literally is what you can walk on. Landlords in New York allocate a "loss factor" to take vertical penetrations and common areas into account. The objective is to apportion common and penetrating elements equally to each "rentable" sq. ft. in the building. In this case, let's say the loss factor on a divided floor in this hypothetical commercial office building is 33%. So, we'll multiply 1,096 sq. ft. by 1.33 and get a product = to 1,458 rentable sq. ft.
The associate office is 120 useable sq. ft. and 160 rentable sq. ft.
Without the associate office the commercial space size would drop to 1298 rentable sq. ft.
The conference room in this example measures 168 useable sq. ft. and 223 rentable sq. ft.
Without the associate office and conference room, this space size would drop to 1,065 rentable sq. ft.
That's how we get the appropriate range for a small and solo practitioner to run between 1,000 and 1,500 sq. ft. depending on whether or not they require a conference room and an associate's office.
Let's compare commercial office space rentals to shared legal office space licenses, from an economic perspective using the examples above. Let's make a choice for the smaller practice that requires one Partner office but that does not require an Associate's office. That example measured 1,298 rentable sq. ft. If you assume an average commercial office space rental in midtown, in appropriate A-/B+ buildings of $59.00 per rentable sq. ft. plus electricity ($3.50 per rentable sq. ft.), the commercial office space described above would cost, $64,900 in the first year (about $5,400 per month). From a utilization standpoint the practitioner gets total privacy and total control of the environment, decor and contents as well as specifications for the IT and Telecom infrastructure. And along with control comes the responsibility (and obligation) of management.
Now let's compare that to renting shared legal office space within the premises of a law firm that wants to share it's offices with other attorneys. The principal difference is that the space is most often offered on an "all inclusive" basis - so that the "guest" attorney is renting a "serviced" office space that includes all of the amenities - so the receptionist is there full time to meet and greet visitors (which is an expense we did not include in the summary of commercial office space costs above), and the conference rooms are available "as needed" generally on a sign-up basis. Also the kitchen/pantry area is available and copy/scan/fax is generally billed on an "as used" basis.
A nice partner's office generally runs between $3250 and $4000 per month in today's market. The primary variables are size, whether or not it is a corner, views and light, and of course the overall quality of the building address. Let's take $3750 as the medium to high end office example. The workstation in these scenarios generally runs between $500 and $750 per month, so "all in" you're looking at around $4350 per month for both persons to be fully provisioned for work. (Generally you'll "port" your lines to the "Host" phone system so while you are using their phone equipment, the only cost after initial installation is monthly tolls paid directly to the phone company on your account for your lines only.
So you're comparing $4350 for the shared space to $5400 for the private space - and there are several items you could add to an exact accounting of the private space which we've not included here. What you're giving up is the complete privacy that comes along with a dedicated commercial office space and what you sacrifice in the office space is the camaraderie and possibility of sharing work that comes by default in a larger, shared space - but then again you've got the annoyance of a group of people around you that you may or may not have a lot in common with.
I'm going to break this example down with more specific expenses in Part II of this article.