Cost Cutters: Ditch the Pricey Office

PAYING TOO MUCH for office space? You're not alone.

Rents have been on the rise in recent years, and in the second quarter of this year, businesses paid on average $29.34 a month for one square foot of office space, up from $27.43 a year earlier. Despite a weakness in the residential housing market, rent growth in the commercial sector remains healthy — and is expected to expand in 2008, according to Reis, a New York real-estate research firm.

As rents continue their ascent, it may be time for business owners to cut back on pricey office space. Here are five cost-cutting strategies:

Negotiate a New Lease

Business owners with leases that are about to expire should think about renegotiating with their current landlords. Sam Chandan, chief economist for Reis, says landlords may be more willing to offer concessions such as periods of free rent, discounts or tenant improvement allowances. The reason for their generosity? With rents cutting deep into companies' operating budgets, landlords might worry that tenants may begin vacating. By year end, the office vacancy rate is expected to increase to 13.4%, up from 12.6% in 2007, according to Reis.

Move Home

You might also consider moving home, says Gene Marks, president of the Marks Group, a technology consulting firm in Philadelphia. To cut out the cost of his firm's office space, Marks and his 10 employees moved home seven years ago. A lot of companies with employees shy away from working virtually, but Marks says his group is helped out by remote technology. "We use a virtual private network, and I have a couple of servers in the basement of my house," he says. In addition, the firm's employees peek at each other's desktops with screen-sharing technology from Citrix Online and access a virtual phone system via Virtual PBX. For more on letting staff telecommute, read our story.

Consider "Coworking"

If you want to ditch the office, but have an occasional need for work space, then something called coworking (essentially, sharing office space with others with similar needs) may be for you, suggests Steven Fisher, co-founder of SlipStream, an aviation software company in Reston, Va. "You get the water cooler environment without all the expenses," says Fisher, who regularly shares work space. With the price of a rented cubicle, which can cost about $100 to $300 a month, you typically gain access to a shared kitchen, common area and conference room. For a listing of various coworking centers, head to the Coworking Wiki.

Sublet Your Office

If you're stuck in a lease, Marks recommends "subleasing [your office space] out to somebody and generate revenues that way." Or consider subletting a portion of your office space to other businesses. You'll likely need to get permission from your landlord to sublease office space. But if you explain that you're having trouble keeping up with costs, he or she may be more willing to consider it.

Rent Executive Suites

Still need office space? Consider renting an executive suite. While coworking centers offer a communal atmosphere, executive suites effectively mimic traditional office settings. Some well-known companies including Regus, Corporate Suites Business Centers and Davinci Virtual offer varying levels of office space in hundreds of U.S. and international cities. At Regus, for example, reserving a private office in Manhattan for 16 hours a month starts at $225. That includes a business address and a local phone number that gets answered by a live receptionist. Hayes Reilly, the founder of Hayes Reilly Associates, an executive search firm in Morristown, N.J. recently switched to a fully-dedicated executive suite. After paying $4,600 a month for a 1,700-square-foot office, he now pays $1,600 a month for roughly the same amount of space. "What we give up is our own private entryway and our own private conference room," says Hayes. However, he adds, "it didn't make sense to continue paying for air."