The Real Deal New York

Offices get sliced and diced

Mini-office market robust as more companies need flexible space solutions

February 05, 2008
By Dan Ackman

Wellie Chao used to own a small software company. Like many small business owners, Chao found the search for office space “pretty tough.”

Since he only had three employees, landlords didn’t want to deal with him, and brokers weren’t much interested in a new company with limited needs and cash.

From his frustration came an idea that pushed Chao out of computers—and into real estate. He rented 5,000 square feet on West 20th Street, installed cubicles and started renting them out individually.

Chao named his company Micro Office Solutions, and it is now one of a growing number of firms that slice-and-dice space for small businesses, satellite offices of out-of-town companies and solo entrepreneurs in the city. The field, which includes at least one publicly-traded international company, is mostly made up of new firms that are small businesses themselves.

While there is nothing particularly new about renting mini-offices cut from larger spaces, the number and variety of offerings has burgeoned, and for good reason. According to Census data, there are more than 19 million nonemployer firms in the U.S., and another 2.8 million with one to four employees. In New York State alone, there are 224,000 firms with between one and four employees and 1.4 million sole proprietorships.

As communications and technology have improved, and outsourcing to China or South Dakota has become increasingly common in more professions, going it alone has never been more viable. Office space, however, can be a bottleneck for businesses that are too small to need even an office suite or too financially tenuous to risk a five-year lease.

“Temporary office suites are not right for everyone, but for new companies or those in transition, they can make a lot of sense,” says Ben Friedland, a senior vice president at CB Richard Ellis. While these offices may be more expensive than larger, more permanent spaces on a per-square-foot basis, they offer a sensible alternative for companies that may be looking to add an office or for a new firm that wants to avoid the up-front capital costs of buying furniture or wiring a new space, Friedland says.

Chao says he charges a flat fee of $495 a desk per month and an additional $110 for Internet and telephone per month. Chao notes, however, that it is hard to compare prices because mini-office renters are also paying for use of common space and other amenities.

Flexible mini offices—whether an enclosed office, a cubicle or simply desk space—fill the startup niche, but also service larger clients who are seeking short-term rentals. Micro Office Solutions, which now has three locations in Manhattan, might lease 50 cubicles for six months to a new branch office of a larger firm testing the waters in the New York market, Chao says. Or it might rent a single cubicle to an individual working on his or her own.

When Chao was looking for this kind of space before he started up in 2003, he said he was mostly forced to seek oddball sublets from a firm that happened to have an extra office or two.

“It was not an easy process, and depended a lot on luck,” Chao says. Once a sublet was located, the sublessor, not primarily in the leasing business, might have limited interest in maintenance details, Chao notes. As a result, the entire process is “hit or miss,” he says. Micro Office now leases 65,000 square feet in three Manhattan locations.

Sunshine Suites, a competitor that also has three facilities in Manhattan totaling 70,000 square feet, provides conference rooms, Internet access, kitchen and common areas, as well as offices or cubicles. The company, whose most recent facility opened last year in Tribeca, also provides less tangible benefits like networking opportunities and reduced rates on perks like gym memberships.

Sunshine also offers a sense of hipness emanating from its modish spaces, which have the feeling of private clubs with their custom-designed cubicles. While most of its customers are one-to-five person businesses, it has also leased a 40-cubicle area to the software company Adobe. Sunshine Suites has the lowest price point of the firms surveyed, leasing cubicle space for as little as $325 per month.

Nutopia Workspace, which caters to a more creative, community-minded clientele, according to founder John McGann, also recently moved to a 10,000-square-foot loft in Tribeca after seven years in Greenwich Village. Rather than cubicles, McGann favors an “open space” plan inspired by Jane Jacobs and Henry George. More recently, the open-space model has been associated with Google and Bloomberg News.

In addition to full-time space (some of which is divided into cubicles and private offices) starting at $600 per month, Nutopia offers part-time and “drop in” plans suitable for freelancers who sometimes work at client or home offices.

Month-to-month space may also be attractive to downsourced bankers considering a new venture or simply looking for a place to send out resumes, especially where, as is usually the case, an outplacement package does not include the use of an office, says Paul Bernard, a Manhattan-based outplacement consultant.

Writers’ rooms, which offer desk space to working writers, are cheaper still. While the nonprofit Writers Room has been in business on Astor Place for three decades, its long waiting list has inspired a half-dozen for-profit competitors. These facilities, often owned by writers as well, lack permanent desks or phones. But they give writers, graduate students and even some stay-at-home mothers looking for a quiet escape a place to work outside of the house.

Harry Bruinius opened the Village Quill on Franklin Street in 2005. Acting on a tip from one of his journalism students, he found a Tribeca loft that had been inhabited by a squatter and offered the owner a deal by which he would renovate it at his own expense and turn it into a writing space. Bruinius now has 35 writers who use the space, and he also makes it available as an art gallery and for parties and corporate events.

Paragraph, which opened on 14th Street also in 2005, was founded by Joy Parisi and Lila Cecil, who met in the writers’ program at the nearby New School. Both were looking for a source of income that afforded them time to write their fiction.

On the opposite end of the spectrum are more traditional office spaces, like those offered by the Regus Group, a British company with locations in 400 cities around the world, and locally owned Bevmax Office Centers, which has six facilities in Manhattan, all in first-class buildings.

Rick Feld, a former real estate lawyer who started Bevmax in 2001, said his target client is the small hedge fund or accounting firm with five to 10 employees, which needs a prestigious address and an impressive conference room, but also maximum flexibility to expand or close shop. To reach that market, Feld typically offers six-month leases but also dots his hallways with modern art and designer furniture. “It’s not cheap space,” Feld said. “But it’s way more cost-effective.”

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