Rofo recently visited the Number 10 office and spoke with the founder and CEO, Thomas Tsatsos. Number 10 is a web design firm focusing on open source solutions that serves clients around the world.

Thomas shared some great insights into finding office space acquired during Number 10’s search for their current space. Then Rofo toured the fantastic Number 10 office space at 444 Townsend Street in San Francisco. It’s a unique and well thought out office with a great open layout. They especially enjoy the large windows that allow great natural light, helping the office’s lush foliage thrive and the employees maintain a healthy complexion.

Number 10 Space Interview with Thomas Tsatsos

Number 10 Office Tour

Who are you, what is the name of your company and where are you located?
We are Number 10 a web design and development firm. The address is 444 Townsend St.

Who do you work with?
We work with a lot of bay area companies, we also work on an national level with companies in other states and we have several international customers as well, with a fair amount of focus on Japan.

How long have you been in this office?
About 5 years.

How many employees at this office?
6 in this office.

Why does this space work for number 10?
We’re a design and development firm focused on open source solutions, and some of the philosophies that surround open source include collaboration and transparency. This office sort of lends itself to that philosophy. We eliminate the daily meetings that you see in typical corporations in favor of quick discussions and this open floor plan allows us to do that easily.

What originally attracted you to this to this space?
I would say the sunlight in the space, you know, healthy tans are important. But seriously, we really like the urban look and feel, concrete floors, high ceilings, its really what attracted us to the place.

Did future growth factor into the choice of this space?
We did and that is one of the reasons we selected this space, because it’s a pretty large space for 6 people and occasionally we have contractors come in and use desks as well so it works out really well for us.

Was transportation and location a factor?
Certainly another factor, we’ve got both clients and employees alike that are not in San Francisco and being just a couple blocks away from 280 and 101, not to mention muni and CalTrain makes transportation very simple. This place is very central and accessible.

How did you find this space? Did you use a commercial broker or online resources?
We used a broker to actually find the location. We went around to several places before deciding on this one. I actually prefer using both resources at the same time, because a broker is always going to find something that you might not have noticed, or they might bring something to your attention that you may not have seen online. At the same time going online and just looking at something like Rofo.com, there’s a convenience factor there, and you can see everything there at once, and you can filter where you want to look specifically.

Did you use any professional services for moving, and do you currently use any services in your office?
As far as moving, not so much, because we were moving from a much smaller place, and essentially ended up buying a lot of our furniture specifically for this space. We do have cleaning services and someone that comes in and waters the plants.

Any pros and cons that you’ve noticed?
I would say that the place is relatively uninsulated, so in the wintertime it gets a little bit chilly, but nothing that a few space heaters here and there can’t remedy.

What are some of the lessons that you learned while finding your office space?
Definitely do your homework, get out there and see as many places as you can, just so that you have a frame of reference. Also, you’re going to start to understand the importance of location and aesthetics versus price. One thing, maybe one takeaway is learn to negotiate with the landlord, there’s always some give and take there, not just on price, but also on amenities. You can get maybe some cleaning thrown in, maybe fresh paint or reduced parking fees.

Is there any specific advice you would give to a new company looking for space?
Definitely get out there and look at as many places as you can, its different looking at a list on the internet than actually seeing it.

Google Trends is a tool that tracks how much people are searching for certain terms on Google.  Here are a few  interesting graphs created with Google trends related to commercial real estate search.  The first graph is the average search volume in the USA for the term “Office Space” since 2004.

Analysis: The graph represents the search volume index for the term “office space” since 2004.  The search volume index is the average number times “office space” was typed into Google search since 2004 and is set at 1.0.  The letters on the graph are news articles that Google thought were related to “office space“.   Today the search volume index is about .65 meaning the average number of times people type “office space” into Google search is 65% of the average since 2004.  The official start of the recession was in December, 2007, and since then the graph shows a 35% drop from the average search volume as the demand for office space declines along with the overall economy.

The next graph shows the search volume index in the USA for the term “commercial real estate” since 2004.

Analysis: The number of searches in the USA for the term “commercial real estate” shows an even more disturbing trend, decreasing around 50% from the overall average since 2004.

Google Trends also allows you to compare search terms.  In the next graph the search volume for the terms “San Francisco Office”,”Los Angeles Office” and “Sacramento Office” are compared.

Analysis: The comparison is ranked in relation to the average search volume for “Sacramento office”, which is set as 1.0.  This shows that on average people search for “San Francisco office” and “Los Angeles office” about 2 and 2.7 times more, respectively, than “Sacramento office”.  The graph also shows that in 2009 both Los Angeles and San Francisco search volumes are experiencing a slight rebound that seems to be correlated with the recent positive economic sentiment.  However, the Sacramento office market remains pretty stagnant.  Check out Rofo listings in each of these markets: San Francisco, Los Angeles, Sacramento.

I wouldn’t recommend completely relying on the accuracy of Google trends since there are many variables, but it does give an interesting glimpse into the Google search relationship to current market conditions.  Try it for yourself: Google Trends

This is great commercial real estate for lease. Though this type of space is intended for a light industrial type of use I really think this setup would be excellent for a true office use. I like the idea of having a big roll up door that would give your office environment a real indoor outdoor feel.

150 Executive Park is conveniently located just off of highway 101 near Candlestick Park. The building offers free parking, a free Bart shuttle, and unparalleled Bay Views. The 3200 square foot suite is a fully furnished office space and has updated wiring in place. The suite was designed as an open concept with plenty of natural light and includes a private balcony. The space is configured to accommodate up to 24 employees. Amenities include 2 Deli’s on site, many restaurant choices within a few minute drive and 24 hour security.

Companies seeking a centralized location and easy access from both San Francisco and San Mateo counties will find San Francisco Executive park the perfect home for their business.

Thanks again to Steelcase and our local commercial real estate partners for helping us produce the following office space video:

As we think about expansion cities its hard not to consider the Seattle office space market as a logical next step. We seem to get a fair amount of requests from entrepreneurs and businesses to “get up here soon”.

I was recently catching up with an entrepreneur who started Helphive.com. Its really a great service connecting consumers with Seattle plumbers, landscapers, cleaners, contractors and handymen. They’re solving a problem that exists for consumers that we are addressing on the commercial side.

1. How active is the broker in the marketplace?
If the commercial real estate broker is active in Carlsbad, but has never worked in San Diego, where you’re looking for office space, it could be a mistake to hire him/her. If they can prove to you that they have the ability to find the tough to find spaces and get information on the most recent transactions. If they can pass both of these hurdles and seem qualified, an out-of-town broker can provide the right level of service. If not, ask them for a referral to a local broker.

2. How long has your broker been in the biz?
Less experienced brokers may work hard but may expose you to common mistakes. Industry veterans can quickly make you aware of the pitfalls and help you avoid them. After about three years in the business, a broker is usually seasoned enough to have learned the tricks of the trade.

3. Check out references
Ask to speak to recent clients who can vouch for their diligence and honesty throughout the process. Ask about their negotiating skills and time spent on the process.

4. Are you looking for a Specialist?
Many brokers specialize in types of firms or industries. If you can find the broker who specializes in your industry (biotech space, retail, restaurants, etc), you may get a leg up in the negotiation.

5. Conflicts of interest
Some brokers might work for many landlords throughout the city. If they do, at times their fiduciary duty is challenged when they represent both parties. Most brokers are ethical and this would not create a bad situation, but exceptions do exist.

1. Move in Date

If a space has been vacant for a long time, the owner is usually more willing to deal. If you can’t meet the landlord’s rent needs, but are willing to take the space right away, the landlord might be more willing to bend on the rent.

2. Monthly Rent

The common rule of thumb is to try and negotiate the asking rent down 5-10%. The leasing market gathers its pricing data from market comparables which are other companies signing leases. Data is currently traded among brokers so they can make sure their clients are receiving the most appropriate rental rate and terms. If you don’t have a broker or if your broker isn’t aware of the most recent deals completed, then a barometer of a 5-10% discount is a fair goal.

3. Tenant Improvements

If the space is not ideal, try to negotiate so the landlord is responsible for all reasonable changes to the space. The longer term lease you are signing, the more willing the landlord should be to perform significant improvements.

A good rule of thumb is if you are looking for short term space, then gear your search to spaces that need almost no improvements. If the term is below two years, even asking more new paint and carpet might be a too much to ask for.

4. Free Rent

The amount of free rent depends on the current market conditions, your financial statements, and the term of the lease. With Shorter term leases (less than 2 years) it is tough to negotiate free rent because you are only there for a short period and the landlord wants you to paying the whole time. If it’s a five year lease, 3-5 months of free rent would not be unusual. Most justifications for free rent are that free rent is covering the expensive moving costs and other expenses associated with the move (e.g. stationary, wiring the space etc). If you are a start-up without revenue, the landlord will be hesitant to provide rent abatement because of their concern that you may default after 6 months and they will have provided free rent for 3 months. You may be able to negotiate the free rent after fulfilling an agreed upon minimal paid rent period. It doesn’t hurt to try!

5. Term

Landlords prefer a longer term lease because a space, on average, sits for 5 months vacant between leases. The less down time, the better it is for the landlord’s bank account, and so he will want a longer term agreement. What does this mean to you?

If you are comfortable signing a 3-5 year lease, you can get more aggressive on the economics (rent below asking, free rent, more improvements etc). One way to avoid a longer term commitment is to get termination rights written into your lease. This typically includes a rent penalty (3-6 months of rent), plus the payment of unamortized commissions and tenant improvements.

6. Furniture

Make sure you specify up front whether the furniture is going to be left after your lease expires and if you will be responsible for purchasing the furniture. It is expensive to move and a hassle a small business doesn’t need! Your best bet is to negotiate free use of the furniture and the right to purchase it at the conclusion of the lease should you want to take it with you to your next location.

If you need to purchase furniture, please see Rofo’s Recommended Furniture Suppliers to do it affordably!

7. Upfront Costs

Larger companies have the ability to get landlords to contribute to the upfront costs of the move process. This can only be negotiated during times where the market has a lot of vacancy. Small business typically can accomplish this same concept through free rent (see #4 above).

8. Security Deposits

Security deposits are typically a function of how much money a landlord will spend to get you to move into the space (commissions and tenant improvements) vs. how confident they are in your ability to pay rent (financial statements review). We have seen security deposits range from 1-12 months depending on the situation. A good rule of thumb is 1-3 months of security deposit for a small business who needs only minor improvements.

9. Commissions

If you are not represented by a tenant rep broker, you can try to use this as a lever to deduct the proposed fee amount from your total rent obligation.

10. Options

Renewal Options, Termination Options, and Expansion Options all should be negotiated. These options provide you with the most flexibility and control of your office lease.

Here’s what you can expect:

Retail Space
Most retail spaces are delivered in “as is” condition, meaning that the electrical and plumbing both work and the space is ready for business. It can be difficult to negotiate much of a contribution from the owner/landlord to complete your improvements that are needed for your business. If the improvements would be needed for any tenant, like an ADA bathroom, then make sure to ask for them up front as costs can increase quickly. However, in these current economic times, tenants may have more leverage when negotiating the TI’s.

Industrial Space
Make sure the roof doesn’t leak and your power needs are provided for with the current infrastructure. If the current infrastructure is not adequate, ask for the desired improvements in the first offer. Once those major issues are out of the way, improvements usually occur in the office area or for a restroom installation.

Office Space
For most small businesses, the biggest issue with a space is the necessary term of the lease. If you want to do a month- to-month or one-year lease, the landlord will rarely provide much in the form of improvements. If you are signing a lease for two or more years, there are opportunities to ask for new paint and carpet, or the reconfiguring of the existing office layout.

It was as recent as last summer that the thought of leasing a cool office space in Jackson Square for a reasonable rent was near impossible.

Fast forward to 2009 and the world has changed. We recently filmed this office space at 480 Pacific Avenue in San Francisco. If you have a need for a space to fit 20 people this one is well worth a visit.